Refinancing Your Mortgage During a Consumer Proposal

1 November 2020 By: Devon Jones0 comments

If you’re a homeowner struggling with debt, refinancing your mortgage while managing a consumer proposal can be a powerful strategy to regain control of your finances. A Licensed Insolvency Trustee (LIT)—authorized under the Bankruptcy and Insolvency Act (BIA)—can guide you through this process and help you create a legally binding consumer proposal. This proposal consolidates and reduces unsecured debts, such as:

• Credit cards
• Income tax
• Unsecured lines of credit
• Payday loans
• Installment loans
• In some cases, student loans

Why File a Consumer Proposal?
A recent survey reveals the top three reasons Canadians file consumer proposals:

1. Relationship breakdown – 97%
2. Unemployment or income issues – 09%
3. Health issues – 01%

Once a consumer proposal is filed, all calls and collection efforts from unsecured creditors will stop, giving you much-needed relief.

Understanding Consumer Proposal and Your Credit

A consumer proposal is reported to your credit bureau and remains there until three years after it is fully paid off. Your repayment options include:

1. Monthly payments for up to 5 years.
2. Selling assets to settle the debt in a lump sum.
3. Refinancing your property will allow you to pay the proposal off sooner.

• Monthly payments mean the proposal stays on your credit report for 8 years.
• Lump-sum payments (via property sale or refinancing) reduce this to 3 years.

Rebuilding Credit During and After a Proposal
Paying off the consumer proposal quickly is key to rebuilding your credit. Afterward, obtaining two secured credit cards can significantly improve your credit score. Mortgage lenders often look for two active credit cards when considering applicants post-proposal.

Missing payments on secured cards after a consumer proposal can impair your chances of getting approved for a mortgage.

Strategic Mortgage Refinancing During a Consumer Proposal

Refinancing your mortgage or obtaining a second mortgage to pay off your consumer proposal early offers significant benefits:

1. Reduces the time the proposal remains on your credit bureau from 8 years to 3 years.
2. Allows you to refinance at a lower mortgage rate sooner.

However, if you’re currently with an A lender (major bank), refinancing directly during the first 5–8 years is unlikely due to credit restrictions. In such cases, you can:

• Explore a second mortgage or private mortgage to pay off the proposal.
• Work with an alternative mortgage lender who specializes in borrowers with impaired credit. While their rates are slightly higher, this approach saves money long-term and accelerates your financial recovery.

Key Steps to Take:

1. Make your mortgage payments on time during the consumer proposal process.
2. Once your debt is restructured, refinance or obtain a second mortgage to settle the proposal.
3. Work closely with your mortgage broker to analyze your numbers and explore the best refinancing strategy.

When to Refinance

Refinancing your mortgage during a consumer proposal allows the proposal to fall off your credit bureau in 3 years. If you delay and choose to pay the proposal over 5 years, it will take an additional 3 years (8 years total) before you can qualify for discounted mortgage rates with A lenders.

While not all lenders will offer a mortgage to pay off a consumer proposal, alternative lenders can provide solutions tailored to borrowers with damaged credit.

How Sunlite Mortgage Can Help
At Sunlite Mortgage, we have been working with Canadians for years to help borrowers recover from consumer proposals. Whether you want to refinance, obtain a second mortgage, or buy a new property after a consumer proposal, we’re here to guide you through every step.

Let our team help you find the right solution and get you back on track to financial freedom.

Contact us today to discuss your options!

• Mortgage Refinance
• Refinance