Co-signing a Mortgage: Benefits and Risks

People usually choose to cosign a mortgage loan to help someone they trust, not to gain financially. It might be a way to support a close family member or a friend who is responsible but needs help qualifying for a mortgage. In many cases, the decision comes down to personal relationships and a willingness to step in when it matters.

Cosigning should not be viewed as a financial opportunity. While consistent, on-time payments may have a modest positive effect on your credit profile, this is secondary. The primary reality is that you are taking on risk to help someone else move forward.

Before extending a loan, a lender needs reasonable confidence that the borrower (or borrowers) can repay it. This is known as the underwriting process, and for a mortgage, it weighs several factors.

The first is credit history. The borrower should have demonstrated responsibility for debt payments through their credit report and the resulting credit score, which plays a vital role every time they apply for credit — whether a credit card, a line of credit, a car loan, or a mortgage. The second is income. The borrower must show enough income to service both their existing debts and the new loan, a test lenders apply using the total and gross debt service ratios.

When two people sign for the loan instead of one, the lender assesses them together: it looks at both credit reports, and it combines their documented incomes, debts, and housing obligations when calculating the debt service ratios. As a result, a borrower can significantly improve their chances of approval by enlisting a co-signer with a high credit score and low debt service ratio.

The downside of having a co-signer is qualifying for a loan more significant than one can afford and then struggling to pay installments. When housing markets are efficient or undervalued, this might not be a big risk since the house can be rented to pay the installments or sold to repay the mortgage. But after the 2008 financial crisis, we have witnessed years of financial repression in which interest rates are lowered by central banks via extensive money printing.

Over the past two decades, a combination of factors—including low interest rates, limited housing supply due to zoning and land-use restrictions, and strong population growth—contributed to rising home prices across Canada.

Since early 2022, higher borrowing costs, changes to immigration policy and the unaffordability of houses have cooled many markets, and prices have declined in previously overheated regions such as southern Ontario and southern British Columbia. At the same time, demand has remained strong in more affordable regions, including parts of Quebec and other provinces, where prices have continued to rise.

Even with these shifts, housing in some areas—particularly in southern Ontario and southern British Columbia—can still feel expensive relative to local incomes. Market conditions are influenced not only by interest rates but also by supply constraints, immigration patterns, and broader demographic trends. Buying a home that stretches your budget can put significant pressure on your finances, and it may take years to recover if your circumstances change or prices decline.

The main issue to consider when cosigning a mortgage or any loan is that this loan would be viewed as a liability for you. Until it is paid off, or until the borrower (home buyer) has improved their finances and you are removed from that loan, it reduces your chance of qualifying for other credit products. Thus you need to think twice about cosigning on a mortgage if you are planning to get a loan yourself. But the cost of cosigning a mortgage can be insignificant compared to the risk of cosigning a mortgage.

When considering cosigning a mortgage, you need to make a judgment call. You need to determine if the person can’t get the mortgage on their own because the bank is unaware of their responsibility, discipline and strong work ethic or if they can’t get the mortgage on their own simply because they can’t afford the mortgage.

If the issue is the limited information available to the bank, your risk may be lower, but it is not eliminated. But if the mortgage is simply unaffordable for them, you face a significant threat that they won’t be able to make their payments, and the lender would ask you to make the payments.

If they are close to qualifying, you might be able to help them find a lender with a lower mortgage rate, and the lower payments due to lower interest rates might enable them to qualify on their own. Alternatively, another lender might calculate debt service ratios slightly differently, allowing them to qualify independently.

When all attempts to get them to qualify on their own for an acceptable rate fail, you might be able to help them by becoming a guarantor instead of a cosigner. By becoming a guarantor, you would be called to make a payment only when the lender fails to get the payment from the borrower. While as a cosigner, you would be called upon to pay as soon as the borrower misses an installment.

Since your primary risk is having to pay their installments, it is best to make a contract with the main borrower obliging the mortgagor (homebuyer) to reimburse you in case you have to make any payment for them.