Posted: 1 Sep '20

What to Consider When Refinancing Mortgage After Bankruptcy

What to Consider When Refinancing Mortgage After Bankruptcy

Life can sometimes be unpredictable. One minute you’re living your dream life, and the next minute you can barely make ends meet. This is the reality for over 100,000 Canadians who file for bankruptcy or consumer proposal every year. If you are facing bankruptcy, call us today to find out how we can help you. 

By definition, bankruptcy is the official position a person or organization takes when they're unable to pay their debts. It is often a last resort measure that allows them to alleviate financial distress and get a fresh start by liquidating their debts. Some of the leading causes of bankruptcy include: 

  • Medical problems 
  • Reduced earnings 
  • Emergencies such as national disasters 
  • Divorce or separation 
  • Misuse of finances 

Though bankruptcy offers some relief from creditors, it also comes at a cost. After filing for bankruptcy, your credit score takes a severe hit, and it will remain in your credit report for years to come. Though one can slowly rebuild their credit score, accessing credit will still be challenging as lenders will view you as a more risky borrower. 

However, this does not mean accessing credit is impossible. You could refinance your home if you were fortunate to retain it after filing for bankruptcy or try to get unsecured credit if you have improved your credit score. 

Mortgage refinancing after bankruptcy can offer you a lifeline if you are in dire need of finances and can also help you pay off the obligation in your bankruptcy. This is a decision that calls for careful consideration. Let’s discuss things you should consider before applying for mortgage refinancing after bankruptcy. 

Are You Rebuilding Your Credit Score? 

Once you've filed for bankruptcy, your credit score will plummet, and the bankruptcy will reflect on your credit score for at least six years. If it's a second bankruptcy, it will appear for fourteen years. Before you get back to a position where you can apply and receive credit again, you must take the necessary steps to demonstrate your creditworthiness. 

The first towards improving your credit score is repaying all the debts that remained or were reduced in the bankruptcy. This should then be followed up by applying for a secured credit card. As the name suggests, a secured credit card is one that requires you to put down a deposit that will serve as security for the credit you will use.  

The key to using credit cards to improve your credit score is responsible use. Therefore, you should only use your secured credit card to pay for your consumables only. The goal is to use it frequently and repay on time. Ensure that you always make the minimum monthly payment and never exceed 75% of the credit limit. 

After some time, you can progress to other forms of credit, such as small bank loans. In Canada, RRSP loans are an excellent way to build your credit and your savings at the same time. These steps will make you appear less risky when applying for mortgage refinancing after bankruptcy. 

Are You Going to Be Approved? 

When applying for credit, always do your due diligence and ensure you’re eligible and likely to be approved. This is because every application you make will appear on your credit report and temporarily reduce your credit score.  

Therefore, always check a lender’s policy towards issuing credit to people who have filed for bankruptcy. Also, you could enquire about your eligibility with a few employees to be sure about your application.  

Mortgage Refinancing After Bankruptcy is All About Planning 

Bankruptcy can have a significant impact on your ability to access credit in the future. However, it does not necessarily mean you cannot access credit. If you repay pending loans on time and take the necessary steps, your credit score will slowly improve, and you'll soon be in a position to access mortgage refinancing after bankruptcy. Contact one of our bad credit mortgage specialists today to see how we can help you.  



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