“Unlock your home equity!”
“Need $30,000 or $300,000? A home equity loan is the answer.”
“Home equity loan? Let us show you how we can help!”
A quick glance at some of the ads on city billboards and on the web (as well as in our local newspapers and on our television screens), illustrate the popularity of home equity loans and lines of credit.
Home equity loans allow a homeowner to borrow money by using their house as collateral. A home equity line of credit is a cross between a personal line of credit and a second mortgage. Your home is collateral for the loan. You do not have to draw the money until you need it. You can draw all or part of it at any time, and pay some or all of it back as you wish. Think of it as low-cost revolving credit.
This option could provide badly-needed cash to pay down any debts you might have that carry higher interest rates. But borrower beware! Home equity lines of credit are not like other loans:
- Unlike your primary mortgage, home equity lines of credit are “demand loans” – your lender could conceivably demand repayment in full at any time.
- There are fees levied for setting up a home equity loan, including appraisal fees, legal fees, disbursements, and HST.
- Home equity lines of credit are not designed for those of us who have a hard time restraining our spending – the temptation to drip into the line of credit whenever you feel like it could end up adding a sizable amount to your existing mortgage, with nothing to show for it.
It’s also essential to be cognizant that a potential rise in interest rates in the near future (quite possible if Canadians continue to rack up runaway amounts of personal debt) could put your now-profitable piggy bank of a home “under water” (a scenario where the debt on your home is higher than the actual market value of the property). And that is a scenario you want to avoid at all costs.
The Canadian Government Institutes Protective Measures For Consumers
The past decade has been a comfortable one, in many ways, for Canadian homeowners. We’ve enjoyed unprecedented low interest rates and have taken advantage of the convenience of using our homes to finance our lifestyles. Until the Federal Government decided to put a stop to this behavior by bringing new mortgage rules into effect on July 9th, 2012. As of that date, the maximum amount a Canadian family could borrow when refinancing their house was reduced from 85% of the value of the home to 80%. This effectively means that less money is available to us through our home equity lines of credit.
Ultimately this means that many Canadians will no longer be able to use their available house equity as a way to pay off unsecured debt. It also means that, as home owners, we are going to need to get our financing and budgeting in order quickly.
So what other options do we have to clear up a large pile of debt if we’ve lost the ability to use our home’s equity to finance our daily lives?
Want A Smarter Solution? Consider A Consumer Proposal
The Power Of The Proposal
Rather than go further into debt by arranging a home equity line of credit, consider a consumer proposal. Proposals are embraced by educated consumers who may be struggling to meet their financial obligations. These people understand the importance of getting rid of debt as quickly as possible and opt to work with a Trustee to prepare a fair and reasonable settlement offer to their creditors so they can avoid bankruptcy.
How A Consumer Proposal Works
First, you work with a federally-licensed Trustee to determine how much you owe, how much you can afford to pay towards your debt each month, and how long it will take you to pay it off. Then the Trustee submits your proposal to your creditors. If the required majority of your creditors accept the offer, then all your unsecured creditors are obliged by law to also accept the offer.
Here’s another benefit: Filing a Proposal immediately stops all collection efforts and legal actions by your creditors, including lawsuits, asset seizures, and wage garnishments, without having to file for bankruptcy. This type of debt relief is an excellent alternative to a home equity loan.
If you’ve been having difficulty arranging for a home equity line of credit (or want to get out from under the yoke of your present home equity line of credit) and are desperate to deal with this rising debt load, consider a Consumer Proposal as a solution to your debt problems. A. Farber can provide you with a free consultation at one of our more than 80 offices across Canada so you can discuss your concerns with us.
We’ll work together to find the right solution.