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Dealing with debt can be a stressful and oftentimes confusing experience especially if you’re having trouble keeping up with payments. This is where debt relief products, like a consumer proposal, can help. A consumer proposal offers relief from collection calls, never-ending interest rates, and difficult to manage payment scheduled.
But as helpful as a consumer proposal might be, it’s not a cost-free avenue to take. There are fees that come with this mode of dealing with debt that are required. A consumer proposal also involves a requirement to continue paying your creditors, albeit a much smaller amount than what you originally owed. Still, that money that you agreed to pay back according to your proposal still needs to be paid. So what if you are having trouble coming up with these funds?
If you’re finding it difficult to make timely payments to your creditors to ensure that you comply with your consumer proposal, you may be able to use the equity in your home to cover them. If you’re a homeowner with some equity built up in your home, using that to pay off a consumer proposal may be an option for you. Let’s dig a little deeper into this arrangement to help you determine whether or not it’s right for you.
What happens when you can’t keep up with your consumer proposal payments? Find out here.
If You Own a House, You Probably Have Home Equity
Do you currently own a home? Have you been paying a mortgage on it for a few years? Has the value of your home appreciated since you first purchased it? If you answered yes to all of these questions, there’s a good chance that you have some home equity.
Your equity is represented by the value of your home that you actually own outright. For instance, if your home is currently valued at $600,000 and you still owe $450,000, that means you have $150,000 equity in your home (less any liens or any other financial obligations you might have). In this particular example, you would have 25% equity in your home.
That equity can essentially be used as collateral to borrow against your home. You can tap into your home’s equity and use it to pay off your consumer proposal or any other debt or expense that you may have.
For everything you need to know about paying off your consumer proposal early, click here.
How Home Equity Can Help You Pay Off Your Consumer Proposal
There are a few ways that you can use your home’s equity to pay your consumer proposal off.
Home Equity Loan
Also referred to as a second mortgage, this type of loan works similarly to other types of loans in that you can borrow funds from your home, then repay it over time in installments until the full amount is repaid by the due date stipulated on your contract. You essentially take out a second mortgage while leaving your first mortgage in place. This is a good option if you need a large sum of money right away to repay your consumer proposal, but you must make every payment, or else your home – which is used as collateral – could be at risk.
Home Equity Line of Credit (HELOC)
With this arrangement, you are still using the equity in your home, but rather than being given one lump sum that you pay off in regular fixed installments, you are approved for a specific credit limit that you can withdraw up to from your home’s equity.
Similar to a credit card, you can withdraw as much or as little as you need to from your HELOC and are only required to pay interest on the amount withdrawn. Once that amount is paid back, you can withdraw from the HELOC again and again. This may be a convenient option if you believe you’ll need financial assistance in the future. In this case, you’ll have a HELOC, which means you won’t have to reapply for a loan when the time comes.
For a more detailed look at HELOCs vs home equity loans, check out this article.
When you refinance your mortgage, you’re basically taking out a new mortgage to replace your original one. You might want to consider refinancing to take advantage of a lower interest rate while allowing you to save money in interest payments and tap into more equity with a higher loan amount. The benefits are obvious, as you can take advantage of a lower rate and gain access to increased funds for expenses like paying off a consumer proposal. But by refinancing, you’re basically starting over with your mortgage, as your amortization will reset.
What Type of Lenders Offer This?
You may be able to refinance your mortgage or take out a home equity loan or HELOC with a conventional lender or bank. However, there are alternatives to going straight to your bank for these services, and private lenders are one option. Some borrowers might find it difficult to get approved for any one of these loan products because they may fall short of the lending criteria that their lenders may require, such as stellar credit or a certain debt-to-income ratio. Others may not have a minimum amount of equity in their homes that their lenders may demand.
In cases like these, private lenders may be opted for, as they tend to lend to those who are unable to qualify for conventional loan products. You may also find working with a mortgage broker helpful, as they serve as middlemen who network with all the lenders in their circle to find one that may be an ideal fit for specific borrowers.
Access Your Equity to Cover Your Consumer Proposal Payments
If you’re considering using your home equity to help pay off your consumer proposal, call Loans Canada. We can help put you in touch with a lender who can offer you the loan product you need with terms that suit you best. Get in touch with Loans Canada today!
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