What is a Covenantor or Guarantor on a mortgage?

Here is a description of the covenantor and guarantor position, as it relates to a mortgage application.

The key difference between a “covenantor and a guarantor” are:

Covenantor:   is on property title, and is also on the mortgage application.

Guarantor:    is NOT on property title, but is on the mortgage application.

Both of the above (depending on what position is chosen) would be on the mortgage application.  Covenantor or Guarantor are added onto the application and would have to disclose all the same information just as the primary applicant(s) would, for example:

1. legal names

2. address

3. disclosure of all assets owned, mortgage, value of home, etc.

4. disclosure of all debts held

5. credit report must be retrieved

6. employment history

7. employment income

From the mortgage lender’s perspective, the covenantor or guarantor position, actually helps to give some “strength” to the application, however, the covenantor or guarantor’s income is not used to actually “Qualify” the primary mortgage applicants.

It is important for the covenantor or a guarantor to understand that if the primary borrower(s) should ever default on the mortgage, the covenantor or the guarantor would be financially responsible to pay the mortgage payment(s) to avoid issues which would arise from non-payment of a mortgage obligation.   It is also important to note that the covenantor or guarantor’s financial status is assessed to determine whether they could feasibly be able to carry the mortgage application, in the event that the primary applicant(s) could not continue making the mortgage payments.

This article was written by Elizabeth Blair on June 11, 2010.  Elizabeth is a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.

You can contact Elizabeth directly by phone at (905) 510-5785

by email at eblair@mortgageedge.ca

or you visit her websites at:

http://www.missmortgage.ca

http://www.burlington-mortgage.ca

http://www.oakville-mortgage.com

http://www.streetsville-mortgage.ca

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca

Lic # M08005880 / Brokerage Lic # 10680

Head office is located at:  15 Wertheim Court, Suite 210, Richmond Hill, Ontario, Canada.

NEW Lower Mortgage Rates!

Here are hot new mortgage rates for you:

1.     Variable Rate Mortgage at Prime Rate – 2.25% **

2.     5 Year Fixed Rate – 3.75% **

If your mortgage loan amount is greater than $370,000, I can get you

3.59% ** on a 5 Year Fixed Rate.

**  Some conditions apply and subject to approval by the Lender.  Mortgage rates are subject to change without notice.

This post was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.

Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.

You can contact Elizabeth directly by phone at (905) 510-5785

by email at eblair@mortgageedge.ca

or you visit her website at: http://www.missmortgage.ca

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca Lic # M08005880 Brokerage Lic # 10680 Head office is located at: 15 Wertheim Court, Suite 210, Richmond Hill, Ontario, Canada.

Beware of hasty mortgage switches

We are now in an environment of lower interest rates. Perhaps you are the person who is sitting in a mortgage rate at 5.7% and the thought of moving to a mortgage rate of 3.50% has you very tempted. Before you do anything, you must be absolutely sure that your mortgage penalty is not going to be a shocking surprise.

There are two formulas used to calculate a mortgage penalty, the first is the standard three month’s interest penalty, and the second is IRD: Interest Rate Differential.

The following link will show you how these two mortgage penalties are calculated:

http://www.fcac-acfc.gc.ca/eng/publications/mortgages/PenaltyCharges-eng.asp

Banks will sometimes use the IRD calculation, especially in an environment when interest rates are declining. It is very unfortunate that many individuals do not understand this, or have this explained, when they are signing a mortgage contract.

I witnessed, this week, a close neighbour, who visited her bank. She was moved from a 4.6% to a 3.6% mortgage rate. She thought this was a wonderful deal, however, she was required to pay a $5,000 mortgage penalty. I sat down with her, and showed her the amortization schedules based on the two mortgage rates, over five years, and demonstrated that her savings would only be a grand total of $2,000. She had been misled by the banker to focus only on the “great rate” but failed to properly advise the client that the savings on the lower rate were really washed away by the monstrous penalty amount. A move that was probably motivated by a desire to get a new mortgage deal on the books and bump up their sales numbers and at a very serious expense to the client. Others, I am sure, are all happily breaking mortgage contracts, without really understanding the numbers. This neighbour had already signed all of the paperwork with the bank and she hung her head in shame, that she did not contact me first to help her understand the implications of a new mortgage. Be careful you are not lured by the “great rate” especially when there is a handsome penalty associated with the move.

If you are concerned about how your own mortgage will look, with a move to a lower rate, please call me to show you the real numbers.

This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario. Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.

You can contact Elizabeth directly by phone at (905) 510-5785

by email at eblair@mortgageedge.ca

or you visit her website at: http://www.missmortgage.ca

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca

Lic # M08005880 /  Brokerage Lic # 10680