Joint Credit: Understanding Shared Liability
Joint credit is a common reality for Quebec couples seeking homeownership or looking to consolidate their finances. Whether it involves a mortgage, a line of credit, or a personal loan, entering into a joint financial commitment with a partner carries legal and financial consequences that every borrower must fully understand before signing. In Quebec, the rules of the Civil Code of Quebec (CCQ) strictly govern solidary liability and its implications.
The Legal Framework in Quebec
Solidary liability, set out in articles 1523 to 1544 of the CCQ, is the legal foundation of joint credit. When two individuals commit jointly to a creditor, each is responsible for the entire debt. This means that if your co-borrower stops paying, the creditor can claim the full remaining amount from you, regardless of any private sharing arrangement you may have with your partner. This principle differs from a simple joint obligation, where each debtor is only liable for their proportional share.
- Solidary obligation (art. 1523 CCQ)
- An obligation under which each co-debtor can be compelled to pay the entire debt. The creditor is not required to divide their recourse among co-borrowers and may choose to pursue only one of them for the full balance.
Impact on Your Credit File
Joint credit is recorded on both co-borrowers' credit files at Equifax and TransUnion. The total loan balance appears in each file, not just half. This has several practical consequences: the payment history (on-time or late) is recorded on both files; each co-borrower's credit utilization ratio is affected by the entire joint balance; any negative information (default, 30-day or more delinquency, collections) marks both files simultaneously. For AMF-certified mortgage brokers, it is essential to analyze each potential borrower's complete credit file to identify existing joint commitments that could influence their borrowing capacity.
Joint Credit and Mortgage Qualification
Joint borrowing for a mortgage offers significant qualification advantages. Lenders combine both co-borrowers' incomes, which increases the maximum eligible amount. Under OSFI rules (Guideline B-20), the gross debt service (GDS) ratio must not exceed 39% and the total debt service (TDS) ratio is capped at 44%. In the TDS calculation, all obligations of both co-borrowers are considered: credit card payments, auto loans, student loans, and any other existing joint credit.
Strategies for Managing Joint Credit
- Assess both parties' financial situation: Before any joint commitment, both co-borrowers should obtain their credit files and review their respective debts. An AMF-certified mortgage broker can perform this analysis and déterminé whether joint borrowing is the best approach.
- Establish a written agreement between co-borrowers: Draft a financial responsibility-sharing agreement, ideally with a notary's assistance. While this agreement does not bind the creditor, it clarifies obligations between the parties and can serve as évidence in case of a dispute.
- Maintain rigorous payment tracking: Ensure every payment is made on time. A single late payment affects both credit files. Set up automatic payments and designate a primary person responsible for monitoring.
- Plan for separation scenarios: Discuss separation scenarios in advance with your mortgage broker and notary. Déterminé whether one spouse could qualify independently for refinancing the joint mortgage.
The AMF-certified mortgage broker has a professional duty to inform clients of joint credit implications. The Act Respecting the Distribution of Financial Products and Services (LDPSF) requires brokers to provide informed advice and act in each client's best interest, which includes a clear explanation of solidary liability and its long-term consequences.