Tips for getting a co-signer off a mortgage

It is not easy, but it is possible

Tips for getting a co-signer off a mortgage

As far as lenders are concerned, co-signers on a mortgage add financial security, since it means there are two people responsible for paying off any debts. For this reason, it can be difficult to remove a co-signer. But there are options. Here is a breakdown of a co-signer’s responsibility and tips for getting a co-signer off a mortgage.

What is a co-signer’s responsibility?

Both borrowers who are listed as the co-signers of a mortgage are responsible for the entirety of the loan, and not just half of it. In other words, you are responsible for 100% of the loan if the person who you have co-signed with cannot pay his or her share, whether it be for financial reasons or any other extenuating circumstances. This is important to know before you co-sign a mortgage, and a major reason why most lenders are hesitant to remove a co-signer from a mortgage.

Lenders view a mortgage with two co-signers as adding security, since with two people responsible for the loan the lender has double the opportunity to collect on the balance of the debt, if required. The lenders see the risk rise if a co-signer is removed.

In fact, lenders can be so reluctant to remove a co-signer from a loan it might be very difficult to remove it at all, even in the event of a separation or a divorce. Even in cases when there is an agreement that one partner has assumed responsibility for the debt, lenders still find ways to collect from both applicants if necessary. 

Tips on how to get a co-signer off a mortgage

Because your request to be removed as a co-signer on a mortgage will need to be approved by the lender, there is no set procedure for getting out of the arrangement. That said, there are a few approaches you can take. Here are some tips on getting a co-signer off a mortgage:

Consolidate the debt. The primary borrower can combine all his or her outstanding debts into one payment with a new loan, giving them more advantageous terms and rates. In this instance, your name will be removed from the debt when the primary borrower consolidates.

Refinance their loan. This approach is similar to debt consolidation. You can get the loan refinanced in the primary borrower’s name. This means the primary borrower can apply for a new loan to cover the remaining amount on the current, co-signed loan. Simply do not include yourself as a co-signer on the primary borrower’s new loan.

Sell the financed asset. If you co-signed on a debt that is secured by an asset, such as a house or a car, the primary borrower can sell the asset to make the payments. This will work if the asset is worth at least as much as the remaining debt to repay the full balance.

Find another co-signer. If the primary borrower can find another co-signer, he or she will be required to take out a new loan with the new co-signer attached. In this case, you can be removed during the transition.

How to remove yourself as a co-signer on a mortgage

Ask to be removed. This is perhaps the simplest approach. You can contact the lender and request that you be removed as a co-signer on the mortgage. If the primary borrower has a strong enough credit score, or earns a high enough income, to support the loan on their own, some lenders will allow co-signers to be removed.

Get a co-signer release. After the primary borrower makes a certain number of consecutive payments on time, some mortgage loans will release your obligation as co-signer. To see if you qualify for a co-signer release, it is important to peruse your loan contract or contact your lender to find out if this loophole is open to you.

Improve borrowers’ credit rating. One way the primary borrower can improve his or her own credit rating is to check their credit report for errors that may be impacting their scores. Another way to improve a credit rating is to pay off other debts. If the borrower has fewer debts, lenders will be more likely to remove you as the co-signer.

Refinance. If the primary borrower refinances the loan in their name only, then you will be off the hook as co-signer. Not only that, but the borrower may actually get lower interest rates and more favourable loan terms.

Sell the asset and pay off the balance. This is an option if the primary borrower is unable to make their payments. This tends to be a last resort if the borrower can’t make payments and you can’t remove yourself as co-signer.