Consumer Proposal & Mortgage
f you are having trouble paying your debts as they become due, a consumer proposal may be an option for you. In a consumer proposal, you make an offer to all of your unsecured creditors to pay your debts under new terms that you can afford. A consumer proposal typically involves paying a portion of your debt, extending the time period that you have to pay back your debt, or both. In many cases, your offer sees you pay a percentage of your outstanding debt in monthly payments over a set period of time. Once you have made the payments and fulfilled the duties that come with a consumer proposal, your remaining outstanding debts are erased.
A consumer proposal is a good option for many people. However, this legal process does affect your credit rating. When you file for a consumer proposal, a note is made on your credit report. This note remains for three years after the proposal has been completed.
Many people worry that filing a consumer proposal will cause them to lose their house or be unable to renew their mortgage or get a new mortgage. Here are the facts.
Consumer Proposal and your Home
In the vast majority of cases, you do not lose your assets when you file a consumer proposal as long as your offer is sufficient to satisfy your creditors. This means that, as long as you continue to make your payments, you will most likely be able to keep your home. Speaking with a licensed insolvency trustee can clarify this for your particular situation. However, a consumer proposal does not usually involve the loss of assets.
A mortgage lender cannot change the terms of your mortgage because you have filed a consumer proposal. The only way that a lender can foreclose on your home is if you have missed payments. As mentioned, as long as you continue to make payments, you should have no issues.
In a consumer proposal situation, you typically make a payment to your trustee each month. The trustee then distributes this payment to your creditors. Having a standard monthly payment each month makes it easier to budget so you should be able to fit your mortgage payments and your proposal payments into your household budget.
It is important to note that a consumer proposal is filed to all unsecured creditors. Unsecured debts include credit card debt, personal loans, unsecured lines of credit, bank overdraft fees and other such debts. Secured loans such as automobile loans and mortgages are not included in a consumer proposal. If you are having trouble paying these debts, you should speak to these lenders directly.
Renewing your Mortgage after Consumer Proposal
If you need to renew your mortgage after filing a consumer proposal, you should generally not have an issue with doing so as long as you have made all of your mortgage payments in the past and you can show the mortgage lender that you will be able to continue to make your payments in the future. However, a consumer proposal can make it more difficult to switch mortgage lenders. It can also make it more difficult to get a favourable interest rate.
However, remember that a consumer proposal remains on your credit report for three years after it is complete and compare this to the fact that a bankruptcy remains for at least six years after you have been discharged. It’s also important to remember that, since you were more than likely in a difficult financial situation before filing your consumer proposal, getting a favourable interest rate would likely be difficult anyway.
Getting a New Mortgage after a Consumer Proposal
It can be more complicated to get a brand new mortgage after filing a consumer proposal. This is because a consumer proposal negatively impacts your credit rating. However, depending on your circumstances, you may still be able to get a mortgage.
In order to increase the likelihood of getting a mortgage after a consumer proposal, here are a few guidelines to follow:
Take steps to rebuild your credit.
Rebuilding your credit rating after a consumer proposal is certainly possible. Consider getting a secured credit card and using this card for purchases. Paying the bills on this card on time can help restore your credit.
You will be required to take two financial counselling sessions as a part of the consumer proposal process. These sessions will provide you with guidance on how to restore your credit.
Look for a shorter term.
Since the interest rate on your mortgage will likely be higher, consider getting a one- or two-year mortgage. This lets your credit recover during this time and you will avoid paying higher rates for longer than you need to.
Aim for a larger down payment.
Saving money in order to put down a larger down payment can help you get a mortgage. Most mortgage lenders will look for a 20% down payment or more.
Choose a property that you can afford. This may involve starting with a smaller property and moving up later.
By following these guidelines, you increase your chances of getting a mortgage, even if you have filed a consumer proposal.