Posted: 1 Dec '20

Considering a Consumer Proposal? Here’s What You Need to Know Regarding Your Mortgage Renewal

Considering a Consumer Proposal? Here’s What You Need to Know Regarding Your Mortgage Renewal

Dealing with challenging financial situations sometimes requires the intervention of authorized parties, such as trustees. If you’re struggling with debt, you may decide to enter into a consumer proposal with a trustee. In this arrangement, you create a proposal to help you pay off part of your debts within a specific period. 

If you enter a consumer proposal, you may also wonder how it affects your home, especially if you still owe your lender. Let’s discuss how to address mortgage renewals after consumer proposals. Contact us today.

How a Consumer Proposal Works  

A consumer proposal is a legal alternative to filing for bankruptcy. Instead of discharging your debts, a consumer proposal allows you to pay off a part of what you owe your creditors with the help of a Licensed Insolvency Trustee (LIT). The trustee helps you negotiate payment terms with your creditors and also oversees the monthly repayment of debts. In return, your creditors agree to clear your total debt once you pay the agreed amount.  

To enter into a consumer proposal, you need to have a reliable monthly income. Your trustee looks into your financial status- this includes assets that you own and your monthly income. Usually, the creditors expect you to pay slightly above your assets’ worth. The trustee then works with you to prepare a payment plan which cannot exceed five years. 

When your trustee files your proposal with the Superintendent of Bankruptcy, you stop making direct payments to unsecured creditors. These include:  

  • Credit card debts
  • Payday loans
  • Tax debts  
  • Some student loan debts  

However, a consumer proposal does not affect your mortgage since your home secures it.   

What Are the Benefits of a Consumer Proposal? 

  • There are no upfront charges and separate charges from your trustee. The trustee charges you from the funds used to pay off creditors.  
  • A consumer proposal can clear the majority of your debt.  
  • A consumer proposal helps you consolidate debt into one affordable payment.  
  • You can keep your assets, including the equity in your home.  
  • You can freeze actions such as garnishments and contact from collection agencies.  
  • You can stop interest from accumulating on your debts.  
  • You can avoid declaring bankruptcy.  
  • You have access to mortgage renewals after consumer proposals.  

Navigating Mortgage Renewals after Consumer Proposals 

The good news is that a consumer proposal does not affect your mortgage. As long as you make your monthly payments, you continue to own your home. Your lender cannot change the terms of your mortgage since you have a contract. However, they do file for foreclosure of your miss payments for 90 days.  

You may encounter some challenges during a mortgage renewal after a consumer proposal. Remember that to renew the mortgage, the lender may re-access your financial situation. If they feel that your risk is too high, they may deny your mortgage renewal after a consumer proposal.  

Changing lenders with a consumer proposal is also challenging because most prime lenders are unwilling to work with a weak credit report and credit score. It also becomes challenging to get low interest rates because of your increased risk. Your lender may approve your mortgage renewal after a consumer proposal but with high interest rates.  

Fortunately, consumer proposals are temporary. After paying your debts, you can rebuild your credit. Also, credit reporting agencies clear the proposal from your credit report three years after you finish paying off the debt, or six years after you file the consumer proposal. Therefore, you can still qualify for a good mortgage renewal after a consumer proposal.  

Discuss Your Mortgage Renewal after a Consumer Proposal with an Expert 

If your current lender is unwilling to approve your mortgage renewal after a consumer proposal, you should consider finding an alternative lender. An experienced mortgage broker can help you secure a new mortgage. With the Bad Credit Mortgage Brokers at Dominion Lending, you can access the right lenders for mortgage renewals after consumer proposals in Alberta. Contact us today for more information. 

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