A consumer proposal is an excellent form of legal debt relief for many Canadians, and is an increasingly popular bankruptcy alternative. Consumer proposals have the ability to reduce your overall unsecured debt by up to 80%, and simplify your repayments into one manageable monthly payment. Additional advantages of a consumer proposal include a stay of proceedings to offer protection from creditors and collection agencies, and the ability to keep your assets. One of the common concerns of those taking out a consumer proposal is the ability to get a mortgage after filing, and how quickly this can be done. After all, keeping your home is a huge priority. So, how long after a consumer proposal can I get a mortgage? And how will a mortgage renewal be affected?
What impact does a consumer proposal have on your credit rating?
When it comes to taking out a mortgage, all lenders will review your credit score while assessing your application. If you have taken out a consumer proposal, this can affect your ability to have a successful mortgage application. Put simply, if you have or recently completed a consumer proposal, you will be considered a credit risk. Even if you have completed your consumer proposal, you still have a history of being unable to make debt repayments. Because of this, generally speaking, conventional lenders in Canada will be unlikely to approve a mortgage application unless you have at least two years‘ clean credit history following completion of your consumer proposal. If you do have two years’ clean history, you will still need a healthy downpayment of 20%, and evidence that you have been working to rebuild your credit score. You may, however, be able to secure a mortgage from a specialist lender earlier than this. They will assess your situation and the potential risk involved. A reputable Licensed Insolvency Trustee will advise you on the best course of action for your unique situation.
How long after a consumer proposal can I get a mortgage?
If you go through a conventional mortgage lender, this will likely take at least two years, or less if you find a suitable alternative lender. For this reason, it really is dependent on your lender, although most will want you to turn around your credit score before lending to you. If you are able to get a mortgage or even have the financing for a mortgage renewal approved, you can do so even before your consumer proposal is completed. The only condition is that you will need to use your proceeds to pay off your consumer proposal. The good news is that you can therefore apply for a mortgage whenever you like, even if you are in the midst of your consumer proposal. Just bear in mind that you may need to show evidence of your attempts to rebuild your credit score. Your mortgage rate while in a consumer proposal will also likely be higher than a conventional mortgage. The interest rate could, however, be negotiated when it comes to a mortgage renewal.
How can you speed up getting a mortgage after a consumer proposal?
There are a few actions you can take to increase your chances of getting a mortgage during a consumer proposal before you go on to enjoy life after a consumer proposal. These include the following:
- Completing your consumer proposal by paying it off in its entirety
- Saving up a 20% downpayment for a property
- Working with a private lender over a conventional lender
- Working to rebuild your credit score by taking (and repaying) credit and cleaning up any reporting errors
Can you refinance your mortgage to pay off your consumer proposal?
You absolutely can, and often it is the fastest way to pay off a large debt like a consumer proposal. You may wish to take on a larger mortgage to cover both your property amount and the consumer proposal, provided there is sufficient equity in your property to cover the additional loan needed. If you renew your mortgage early, you do need to be conscious of potential prepayment penalties, which may not be helpful alongside your consumer proposal. Lenders will also want to understand why you filed a consumer proposal in the first place to assess the risk of allowing you to refinance. They will also review your credit score to see what you are doing to rebuild it and also to ensure you do not risk falling into further debt. If approved, there are lots of benefits of refinancing your mortgage to pay off your consumer proposal. You can rebuild your credit more quickly, your monthly payments will likely be reduced, and you can apply for credit again – including credit cards – if needed.
How do you refinance to pay off your consumer proposal?
If you decide refinancing is the right move to pay off your consumer proposal sooner, there are a number of steps to take. First of all, your mortgage broker will see if this is a possibility for you. There are a number of variables involved, including your property, any potential equity, and why you needed to file a consumer proposal in the first place. They will also consider your current mortgage, and how close it is to maturity. If refinancing is feasible for you, your broker will share your application with private lenders who may be interested. You will then receive quotes, and you can make a decision. Often, it is quite quick and can be wrapped up in around a month or two. Your Licensed Insolvency Trustee will be able to advise you throughout the process also.
What are the benefits of paying off your consumer proposal early?
There are various advantages of paying off a consumer proposal ahead of time. We have listed the top benefits below:
- You can gain a mortgage more easily
- You can renew your mortgage more easily
- You can work on rebuilding your credit score
- You can gain credit much more easily
- You will have an improved cash flow
- You will gain financial freedom
If you still have questions on ‘how long after a consumer proposal can I get a mortgage?’, you should book a free consultation with a Licensed Insolvency Trustee. At Spergel, we have been helping Canadians file consumer proposals for years, and we are here to help you too. The sooner you reach out, the sooner we can get you back on the path to financial freedom.