Co-borrower: Their names are on the loan, shares ownership of the asset that’s tied to the loan, and is expected to make payments from the start.
Co-mortgagor: They don’t own the collateral that’s associated with the loan; only liable for the loan if the Principal Borrower doesn’t make their payments.
CO-BORROWER | CO-MORTGAGOR |
Shares the debt with the Principal Borrower. | Guarantor for the Principal Borrower. |
Assumes responsibility for payments along with the Principal Borrower from the start. | Assumes responsibility for repayment if the Principal Borrower doesn't pay. |
Shares the ownership of the asset that’s tied to the loan. | Doesn’t own the collateral that’s associated with the loan. |
Both borrowers are beneficiaries of loan funds. | Receives no direct benefit from loan funds. |
Remains legally responsible upon death or permanent disability of the Principal Borrower. | Debt might be forgiven upon death or permanent disability of the Principal Borrower. |
What is a Co-mortgagor?
A Co-mortgagor helps someone to qualify for a loan when the borrower could not meet the required income. If the Co-mortgagor is better qualified than the Principal Borrower, the loan may be approved.
In the event that the Principal Borrower doesn't pay, the Co-mortgagor takes full legal responsibility to repay the loan. They could face ruined credit or collections activities if they likewise fail to assume their responsibility.
If the Principal Borrower passes away or becomes disabled. the Co-mortgagor remains legally responsible for repaying the debt. However, there are some cases where the debt might be forgiven. On the contrary, a Co-borrower doesn't have this option.
Co-mortgagors can also sometimes be released from legal responsibility for the loan if the Principal Borrower is consistently making on-time payments. Otherwise, the only way to remove a Co-mortgagor's legal responsibilities is to refinance the loan.
Disadvantage: A Co-mortgagor doesn't directly benefit from the loan. For example, if someone co-signs for a housing loan, the Co-mortgagor is unlikely to be named on the title of the property, and wouldn't have any ownership.
What is a Co-borrower?
A Co-borrower is someone who borrows with someone else. They share responsibility for repayment in the eyes of the lender, just as Co-mortgagors do. But unlike in a co-signing situation, the Co-borrower is responsible to make payments from the start.
If Co-borrowers take out a joint loan to buy an asset, they both have legal rights to the asset as well as paying for it. They would both have their names on the title of the property.
Disadvantage: Each Co-borrower is responsible for repayment from the start. Any actions by either Co-borrower that impact the loan will affect the other borrower.