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*This post was created in collaboration with Alpine Credits

Do you want to pay off your consumer proposal earlier than planned, so that you can start rebuilding your credit sooner? In Canada, there are lenders who offer specially designed loans for consumer proposals, but they often come with very high-interest rates. 

So you may be wondering, are there lower interest rate options, such as a home equity loan?  Find out if you can you tap into your home equity to pay off your consumer proposal.  

Can You Use A Home Equity Loan To Pay Off A Consumer Proposal? 

Home equity loans and HELOCs are very flexible in terms of how the funds can be used. You can use your loan for just about any purpose, including paying off a consumer proposal. 

However, the problem here lies in qualifying for this type of financing while in a consumer proposal. More specifically, lenders often require that consumer proposals be completed before lending.

Some lenders may require as long as two years or more to have passed after a consumer proposal is completed, while others may accept a loan application immediately after the borrower has completed their consumer proposal. 

What Do You Need To Qualify For A Home Equity Loan While In A Consumer Proposal? 

Qualifying for a loan while in a consumer proposal will be difficult. However, for secured loans like a home equity loan or HELOC, you may have a better chance of qualifying due to the security it provides the lender. Here are some of the requirements to borrow using your home equity:

  • Home Equity  – You need at least 20% equity in your home to get approved for a home equity loan in Canada. This means you can access as much as 80% of your home’s current value, less what you still owe on your mortgage.
  • Income – Income requirements for a home equity loan vary among different lenders. Some lenders may require substantial income and steady employment, while others may accept non-employed forms of income, such as Employment Insurance (EI) benefits and pension.
  • Credit Score – Generally speaking, lenders require borrowers to have a credit score of at least 660 for home equity loan approval, though some lenders may accept lower credit, depending on other factors. 

Where Can You Get A Home Equity Loan While In A Consumer Proposal?

Those with a credit score less than 660 may have a difficult time getting approved for a home equity loan. If you’re looking to apply for a home equity loan before your consumer is complete or before the associated R7 rating has been removed from your credit report, your credit score will certainly be less-than-perfect.

That said, bad credit home equity loans are available from some alternative lenders, even if you’re still in the middle of your consumer proposal. However, the interest rate that comes with these loans is usually higher.

If you do decide to take out a home equity loan or HELOC to pay off your consumer proposal, consider a lender like Alpine Credits.  

At Alpine Credits, your credit history and income won’t affect your loan application. Instead, your ability to get approved for loan is based on the amount of equity you have in your home. 

As long as you have enough equity, you can get approved with Alpine Credits in less than 24 hours. Then, you can use the funds to pay off your consumer proposal.

Types Of Home Equity Loans You Can Use To Pay Off A Consumer Proposal

There are a few ways that you can use your home’s equity to pay your consumer proposal off. 

Home Equity Loan

With a home equity loan, you borrow a lump sum of money using your equity as collateral

Then you repay it over time in installments until the full amount is repaid by the due date stipulated on your contract. 

This is a good option for those who can afford to make consistent payments. If not, you risk losing your home. 

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. Moreover, you 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. 

Should You Use A Home Equity Loan Or A HELOC To Pay Off A Consumer Proposal?

There are a handful of benefits to using a home equity loan or HELOC to repay your consumer proposal. But there are also some drawbacks to consider:

Pros Of Using A HELOC To Pay Off A Consumer Proposal

  • Flexibility. You can borrow as much or as little equity as you want or need from your HELOC whenever the need arises. Once you repay what you borrowed, you can continue to withdraw from your line of credit whenever you need to, including to pay off your consumer proposal or to coincide with your proposal’s payment due dates. 
  • Lower interest rates. Your home is a very valuable asset. Because it’s tied to your HELOC, lenders are more likely to offer lower rates for this type of financing compared to unsecured loans. Securing a low-interest rate is key if you’re planning to use a loan to pay off a consumer proposal early. 

Cons Of Using A HELOC To Pay Off A Consumer Proposal

  • Temptation to withdraw too often. If your spending habits have not improved since filing your consumer proposal, then perhaps a HELOC may not be the best option because of the flexibility that this type of credit product offers. 
  • Variable rates only. HELOCs only come with variable interest rates. That means your rate could increase if the Bank of Canada’s prime rate increases. 

Pros Of Using A Home Equity Loan To Pay Off A Consumer Proposal

  • Lower interest rates. Much like a HELOC, a home equity loan typically comes with lower rates compared to personal loans or other forms of unsecured credit thanks to the value of the collateral.
  • Fixed monthly payments. Your loan payment will remain unchanged over the life of the loan. These consistent payments make bill payments and budgeting easier, which is a bonus if you have trouble managing your finances. 

Cons Of Using A Home Equity Loan To Pay Off A Consumer Proposal

  • Risk of losing your home. Since your home collateralizes your home equity loan, you could be at risk of losing your home if you default on the loan.
  • Minimum equity criteria. If you don’t have at least 20% equity in your home, then you won’t qualify for a home equity loan.

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!

Home Equity and Consumer Proposal FAQs

Do I have enough equity for a home equity loan?

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.
Can I use a cash-out refinance to pay off my consumer proposal?
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 and a higher loan amount.

Can you pay off your consumer proposal early without a loan?

Yes, you can pay off your consumer proposal before the due date without penalty. If you’re able to come up with the funds to repay your consumer proposal early without having to take out a loan, you can apply those funds to your proposal, which will help speed up your credit rating recovery.
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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