It’s not uncommon to face hurdles when getting a mortgage these days. The rules are stringent and we often find that people are being added to a mortgage application or taken off one in order to qualify for property purchases.

But wait! Before you simply let the goal of having an application approved sweep you away, there are a lot of things to consider:

1. Names on a mortgage = Names on Title

Since a mortgage is a loan that is secured by a property, it’s a necessity that the borrowers actually own the property that the lender is trying to secure. That means that if you are adding someone to a mortgage application or taking them off one, you’re making the decision to either add them to title or take them off title. Simply put—that means giving or taking away a piece of the property if you haven’t planned right.

2. What if I’m The REAL Owner and The Other Person Isn’t?

If you have added someone to a mortgage just to get approved, it means you’ve asked them to hold title to the property. Knowing this ahead of time is extremely important. With the right planning, both of you will enter into a Trust Agreement where the party who hasn’t contributed to the financial purchase of the property agrees to simply be on title for your benefit. This ensures that you have the decision-making authority and you carry all the gains and losses related to the property. Having a Trust Agreement is also important to plan for tax issues down the line. Having that document can also ensure that the person coming OFF title doesn’t lose their right to the property and any potential gains they would have received for their interest.

3. Transferring Title Has TAX Implications

Putting someone on title improperly can create a variety of tax issues down the line. If the person owns another property and this becomes a “secondary” property, they could be subject to capital gains later when it’s sold or even just transferred.

There are other capital gains taxes too because all properties that are not primary residences can trigger a capital gains tax in the future.

Land Transfer Tax could also be an issue. When transferring title to a property, technically the party receiving title has land transfer tax obligations. It’s crucial to grasp these obligations and discuss them with your lawyer before any transfer is made.

4. What Else Should I Know?

It’s important to know when you’re going to hold title to a property with another party that you could be opening up yourself to liability issues. If they are indebted to someone or go through a matrimonial dispute or court dispute, the property could become at risk to an outside party’s interest.

5. How Do I Protect Myself?

Make sure you understand the effects of changing a mortgage application and how that affects title to the property. Then make sure you discuss with your lawyer and your accountant to ensure you are making the right move. You will want to leave time for this because making a rushed decision prior to entering into a deal could cost you lots down the line! For mortgage brokers and professionals, ensure you and your client both understand the implications of each change and leave enough room for the right advice and the right plan.

Here’s a quick checklist before you get started:

  1. Is someone being added to a mortgage application who isn’t a purchaser/owner?
  2. Is someone being taken off a mortgage who is an existing owner of the property?
  3. Is someone being put on a mortgage and becoming an owner of the property?
  4. Have you or your clients discussed what happens on sale?
  5. Have you or your clients decided who will have decision-making power for the property?
  6. Have you or your clients discussed the change with an accountant or lawyer?

If YES to 1, 2, or 3, ensure a lawyer and an accountant are consulted before the deal is complete.

If NO to 4, 5, or 6, ensure a lawyer is consulted before the deal is complete.