The Impact of a Consumer Proposal on Your Mortgage
If you’re grappling with financial hurdles, you might be considering a consumer proposal. But a pressing question arises – how does a consumer proposal affect your mortgage? Let’s delve into the intricate relationship between consumer proposals and home mortgages.
Understanding a Consumer Proposal
A consumer proposal is a legally sanctioned procedure enabling you to negotiate debt repayment terms with your creditors or prolong your debt repayment period. Orchestrated by a Licensed Insolvency Trustee (LIT), a consumer proposal offers a respite from the financial strain of settling your debts.
Once a consumer proposal is filed, you gain immediate protection against creditors. This implies they can’t persist in seeking payment until negotiations are settled, offering you some breathing space in debt repayment.
Consumer Proposal and Credit Score
Upon filing a consumer proposal, you’re essentially notifying your creditors of your inability to meet the requisite debt payments. Your credit score is likely to be negatively impacted. However, bear in mind that your credit score might already be impaired by unpaid or late accounts on your record.
A consumer proposal might result in an R7 credit rating, but this could be a preferable outcome compared to making no payments at all.
Home Ownership and Consumer Proposal
Will you lose your home if you file a consumer proposal? The answer is a reassuring no.
One of the advantages of filing a consumer proposal is that your assets, including your home, are not surrendered to the Trustee for the creditors’ benefit, as is the case with bankruptcy. This means you can retain your home (along with any home equity) while seeking debt relief.
In a consumer proposal, you’ll collaborate with a LIT to negotiate with creditors regarding repayment of part or all of your total debts. Any available equity in your home should be considered during these negotiations. The good news is that once the consumer proposal is approved by the creditors, you retain your home while repaying your creditors an equivalent of the home equity amount over a determined period.
Consumer Proposal and Home Acquisition
Similarly, a consumer proposal does not preclude you from purchasing a home. Although your proposal stays on your credit report for three years post the final payment of the agreement, you still have the opportunity to rebuild your credit to enhance your chances of qualifying for a mortgage. As with any home mortgage application, your chances of acceptance increase if you have a good credit score, a substantial down payment (20% or higher), and a stable income.
Consumer Proposal and Mortgage
If you’re struggling to repay your debts, a consumer proposal could be a smart decision. This will help you settle your debts under affordable terms, significantly reducing the financial burden on you and your family. While this legal process does affect your credit rating, it will not ruin your chances of securing a mortgage or purchasing a new home.
Additionally, a mortgage lender cannot alter the terms of your mortgage simply because you filed a consumer proposal. This can only occur if you have missed your payments.
Qualifying for a Mortgage After a Consumer Proposal
A consumer proposal enables you to reduce debt, lower your monthly debt payments, and/or extend the amount of time you have to repay your debts. With this added flexibility, it’s a smart choice to create a budget and start building up your savings. Doing so will help you save for a down payment, increasing your chances of qualifying for a mortgage.
Mortgage lenders will consider these factors when qualifying you for a prime quality mortgage:
- Improvement in your credit rating after the completion of your consumer proposal
- Establishment of two or more new credit facilities
- How much you have saved for the down payment of your new property
In essence, the best way to increase your chances of qualifying for a mortgage is to pay your bills on time and save. This will help you rebuild your credit after your consumer proposal, making you a more appealing candidate for an affordable mortgage rate.
Effect of a Consumer Proposal on Mortgage Renewal
As long as you’ve been making your mortgage payments in full and on-time, you should be able to renew your mortgage with your existing lender, even if you have filed a consumer proposal. This is because your existing lender is unlikely to require a new credit application if you are filing for mortgage renewal.
However, if you switch lenders, you will need to file a new credit application. Remember, filing a consumer proposal will impact your credit rating and this could affect your chances of getting the best rates. It’s best to do everything you can to improve your credit by paying off your debts.
The Bottom Line
When it comes to understanding how does a consumer proposal affect your mortgage, it’s important to remember that while a consumer proposal will impact your credit rating, it doesn’t mean the end of your dreams to own a home or renew your mortgage. It’s a legal tool designed to help you manage your debts in a more manageable way while protecting your key assets.
If you have more questions about how a consumer proposal affects your home or mortgage, feel free to contact debt relief professionals to determine whether filing a consumer proposal is the right debt relief option for you.
