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I have a Home Equity Line of Credit (HELOC) in Canada, Quebec. I have a co-signer on it. The co-signer is not on the deed of sale or the mortgage. I would like to release the co-signer, so he does not have the obligation on his credit file.

The bank confirmed that I can support the HELOC on my own. I do not use the line of credit part, there's 0 balance on it.

In order to remove the co-signer, the bank wants me to refinance and take out $20,000 in equity. They suggest that I put the $20,000 back into the mortgage. I'm allowed to do a lump sum once a year of 15%. So technically the debt is exactly the same as before, and, I quote the bank rep "everybody wins".

I'm told it's the bank's policy, and they cannot simply remove the co-signer from the product. The refinancing solution seems like a waste of my equity.

Do I have the right to request the removal of the co-signer from HELOC ?

What other options do I have ?

I can only think of converting HELOC into a standard mortgage, but I'm told I would need to switch from variable rate to a fixed rate. Fixed rate would really be a disadvantage for me, considering how low the variable rates are today.

mhoran_psprep
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Roman Mik
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1 Answers1

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If there is a zero balance, why not shop around for a HELOC (with no co-signer) from another bank/company? Then you can compare that to the offer from your bank to remove the co-signer from your existing HELOC.

Isn't there another option -- to close the existing HELOC, with the consent of your co-signer? Maybe that should be your first move; opening a new HELOC (with your bank or another bank) could be the second move.

Orange Coast- reinstate Monica
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    There's 2.5 more years on the mortgage part before it's due for renewal. The penalty to break it now is around $10,000. The co-signer has consented to remove his name. Interesting, that I proposed the same solution, as you suggested. To Open a new HELOC and move the mortgage part into it. I was told, it does not work like that and they cannot do it. – Roman Mik Aug 16 '21 at 17:08
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    Even if there isn't zero balance, you should probably be able to refinance with a HELOC that is wholly yours, and pay off the old one. – DJClayworth Aug 16 '21 at 18:05
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    @RomanMik but we're asking about **the HELOC**, not the mortgage. – RonJohn Aug 16 '21 at 20:08
  • @RonJohn there's a mortgage collateral inside of the HELOC. The fixed sum that was allocated for the purchase of the house. In Quebec, it's registered as a mortgage. At first, the bank wanted to sign a new mortgage, but the notary pushed back and said that it will be exactly the same document, then the bank, switched the tune, and asked for refinancing through a notary. when I refused, they said they can refinance without a notary. – Roman Mik Aug 16 '21 at 20:25
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    @RomanMik ah. Things are different south of the border: HELOCs are collateralized by... *home equity*, not whether or not you have a mortgage. – RonJohn Aug 16 '21 at 20:58
  • @RonJohn Canada has odd (to us) mortgages with a term of usually 5 years, with payments amortized for 25 years, and then the remainder comes due at the end of term... at which point you refi into a new one. Similar implications to an ARM, but it's a different product. – hobbs Aug 17 '21 at 17:26
  • @hobbs right, I knew that. But it doesn't mean that HELOCs are tied to the existence of a mortgage. – RonJohn Aug 17 '21 at 17:32
  • @RomanMik I don't think you've proven to our satisfaction that you cannot simply close the HELOC. Leave the mortgage completely unchanged; close the HELOC and be done with it. If you can't close a loan or line of credit with a zero balance, then what is the world coming to? (Sure, some loans have a prepayment penalty, but I've never heard of a line of credit with a prepayment penalty). – Orange Coast- reinstate Monica Aug 17 '21 at 20:34
  • This Canada government site says that you can cancel a HELOC with a zero balance: https://www.canada.ca/en/financial-consumer-agency/services/mortgages/home-equity-line-credit.html#toc9 – Orange Coast- reinstate Monica Aug 18 '21 at 17:41