This process does not happen automatically. The bank must approve the change and confirm that the person remaining on the loan is able to assume responsibility for it.
What does it mean to remove a borrower from the mortgage?
The removal of a borrower is known as a release from the mortgage.
Once approved and formalized by the bank, the person being removed is no longer responsible for repaying the loan.
It is important to distinguish between two situations:
- Borrower: the person responsible for repaying the loan
- Property owner: the person listed as the owner of the home
Changing the property’s ownership does not automatically remove a person from the mortgage. The two situations must be handled separately.
In what situations is this possible?
Removing a borrower from a mortgage can occur in various situations, and is common in cases of:
- Divorce or separation
- Dissolution of a domestic partnership
- One of the co-owners retaining full ownership of the property
- A change in the borrowers’ financial or family situation
However, even if there is an agreement among the parties involved, the bank must approve the change.
What will the bank review?
Before removing a borrower, the bank will assess whether the remaining borrower can afford the loan on their own.
Factors considered may include:
- Income and job stability
- Debt-to-income ratio
- Other loans and financial obligations
- The borrower’s age
- Outstanding loan balance
- Remaining loan term
- Payment history
The goal is to determine whether there is sufficient financial capacity to continue making mortgage payments without the second borrower.
Can the bank change the loan terms?
In cases of divorce, legal separation, dissolution of a domestic partnership, or the death of one spouse, the bank cannot increase the spread or impose additional loan charges as a result of this change.
How does the process work?
- Although it may vary from bank to bank, the following steps are typically required:
- Submit the request to the bank
- Provide documents regarding income and financial situation
- The bank assesses the financial capacity of the remaining borrower
- Formalize the contract amendment, if approved
Until the change is formalized, all borrowers remain liable for the loan.
What if the bank does not approve it?
- If the bank determines that the person cannot afford the loan on their own, there are alternatives:
- Pay off part of the loan, reducing the outstanding principal
- Provide another borrower/guarantor or another type of collateral, if accepted by the bank
- Transfer the mortgage to another institution and seek a solution that better suits the new situation
- As a last resort, sell the property and pay off the loan.
Are there costs involved in removing a co-borrower?
The change may involve costs associated with documentation, registrations, deeds, or other procedures necessary to transfer ownership of the property.