Thinking About Co-signing a Loan?

Are you considering co-signing a mortgage loan? There are many reasons to co-sign such as if the other party has insufficient credit, a lack of cash flow or if they already have too much debt. However, be aware of the risks. If the person you are co-signing for defaults on the loan, and the bank forecloses, you will be left responsible for the mortgage.

Co-signing for a loan means you are making a commitment to the lender to pay the loan if the second party doesn’t. The question to ask yourself is if you can afford to pay for the entire loan? Also, consider the type of interest rate on the loan. You may have the money to co-sign for an adjustable rate mortgage right now but if the interest rates increase dramatically you could be in trouble if the second party does default on payments. If you still choose to co-sign for a friend or family member, you can put a stipulation on the loan that your position as a co-signor will terminate at the end of the mortgage term, be it 2 years, 5 years or 10.