Committed to making your mortgage approval process stress free and efficient for over 25 years, Sunlite Mortgage is one of Toronto, Canada’s leading mortgage brokerages.
You’re not alone if you’re a homeowner drowning in debt and unsure whether to file a consumer proposal and refinance your mortgage. Many Canadians face mounting unsecured debts and wonder how best to protect their homes while rebuilding their financial future. By working with a Licensed Insolvency Trustee (LIT) and an experienced mortgage broker, you can create a plan to consolidate debt, regain control of your finances, and rebuild your credit quickly.
For homeowners like Deb and Bob, a Toronto couple who faced financial difficulties, filing a consumer proposal and refinancing their mortgage was the best solution.
Deb and Bob own a small retail store in Toronto that has been their livelihood for years. Unfortunately, the business has been losing money for the past three years, leaving them with $150,000 in unsecured debt. With no relief in sight, they considered two options:
Their home had appreciated significantly, leaving them with $950,000 in equity. However, their mortgage was in the second year of a five-year fixed term, and breaking it to refinance would cost $35,000 in prepayment penalties.
After consulting with a Licensed Insolvency Trustee and their Sunlite Mortgage mortgage broker, Deb and Bob filed a consumer proposal to consolidate and reduce their debts and then explore mortgage options to restructure their finances. They opted for a second mortgage, which allowed them to avoid the significant $35,000 penalty of breaking their current mortgage despite its higher interest rates and fees. This decision turned out to be the smartest financial move for their situation.
Filing a consumer proposal allows homeowners to consolidate and reduce unsecured debts like credit cards, payday loans, and income tax arrears while protecting their homes. A Licensed Insolvency Trustee oversees this process, ensuring creditors stop collection calls and legal actions, giving you the breathing room to rebuild financially.
For Deb and Bob, filing a consumer proposal reduced their unsecured debts significantly. Still, they wanted to rebuild their credit quickly to secure better mortgage rates when their current mortgage was renewed in three years. By refinancing the proposal amount with a second mortgage, they achieved this goal and reduced the time the proposal would remain on their credit report from eight years to just three.
When deciding how to manage your debt after filing a consumer proposal, the choice often comes down to refinancing your mortgage or taking out a second mortgage.
A straight refinance involves breaking your current mortgage and replacing it with a new one. This option consolidates debts into one payment but can incur hefty prepayment penalties if locked into a fixed-rate term. For Deb and Bob, the $35,000 penalty made this option less appealing.
A second mortgage is a separate loan secured against the equity in your home, leaving your current mortgage intact. While it has higher interest rates and fees, it avoids prepayment penalties and allows you to pay off your consumer proposal faster. For Deb and Bob, this option saved them money in the long run, provided more cash flow, potentially allowed them to pay off their mortgage faster and positioned them to rebuild their credit more quickly.
Refinancing your mortgage after filing a consumer proposal offers several advantages:
At Sunlite Mortgage, we want to make it easier for you to achieve financial freedom. If you choose to refinance your mortgage with us, we’ll cover either your appraisal fee or legal fee—to a maximum of $900.00. This is just one way we’re committed to helping you save money and take the next step toward financial stability.
For homeowners like Deb and Bob, filing a consumer proposal and refinancing their mortgage was the ideal solution to reduce debt, rebuild credit, and prepare for the future. The key is working with professionals who understand your situation and can guide you toward the most cost-effective options.
