A consumer proposal is a formal debt relief program in Canada administered by a Licensed Insolvency Trustee (LIT). In a proposal, you offer to pay your creditors a percentage of your debt, extend the time you have to pay, or both. If your creditors accept your proposal, you have up to five years to pay it off.
Filing a consumer proposal can provide significant debt relief, but will also affect your credit score. While it’s possible to borrow money or get a mortgage in a consumer proposal, your low credit rating can make it more difficult and more expensive.
Here’s everything you need to know about getting a mortgage while in a consumer proposal.
Can I Get A Mortgage While In A Consumer Proposal?
It is possible to get a mortgage while you’re still in a consumer proposal, but you might find it more challenging.
Most big banks won’t loan you a mortgage for at least two years after you’ve completed your proposal. This gives you time to get your finances in order and start rebuilding your credit score.
If you’re still in a proposal or you’ve recently completed it, you may find more success with an alternative lender. Alternative lenders are non-bank lenders that are generally more flexible in who they’ll lend to.
You’ll still need to meet qualification criteria and provide financial documents such as bank statements, pay stubs, and tax returns as proof of income.
While you might have more success qualifying for a loan with an alternative lender, you can also expect to pay a higher cost of borrowing. These lenders know that you’re coming to them because you don’t qualify with a traditional lender. They’re taking on a greater risk lending you money, and tend to charge a higher interest rate because of it.
Before taking on a new mortgage, make sure you know how much your monthly payments will cost and if you can realistically fit it into your budget.
How To Increase Your Chances Of Getting A Mortgage While In A Consumer Proposal?
There are a few steps you can take to improve your chances of getting a mortgage during or after your consumer proposal, including:
- Work with an alternative lender. As mentioned, alternative lenders are often more flexible in who they’ll lend to and how they structure financing compared to a traditional bank lender.
- Save a large down payment. Saving a large deposit of 20% or more helps to reduce the risk to the lender.
- Prepare your documents. Have your proof of income, employment, and credit report documents ready to go. Your paperwork should show that you’ve been working hard to pay your bills on time and rebuild your credit.
- Complete your consumer proposal. If you want to get a mortgage, work to pay off your consumer proposal as quickly as possible.
While you might feel ready to take on a mortgage, make sure you give yourself adequate time to get your finances under control. Avoid rushing into more debt if you still haven’t recovered from your past ones.
Taking a few years to recover financially and build your credit after you’ve completed your consumer proposal can help to open up more lending opportunities at better rates.
How Long Should You Wait To Get A Mortgage After A Consumer Proposal?
How long you should wait to get a mortgage after your consumer proposal depends on the lender’s standards and when you feel financially ready.
Different lenders have different criteria for when they’ll consider extending a new mortgage.
Many traditional lenders want to see a few years of clean credit history after your consumer proposal. This gives you time to start rebuilding your credit score into a good range.
That said, if you don’t want to wait, alternative mortgage lenders are more likely to lend to you sooner because they’re more flexible with how they structure financing.
If you have questions about when you should get a mortgage, you can always speak to your Licensed Insolvency Trustee.
Can You Refinance Your Mortgage While In A Consumer Proposal?
Refinancing your mortgage is when you pay out your existing mortgage with a new loan. The new loan comes with a new interest rate and terms. Refinancing allows you to access the equity you’ve built in your home.
While it’s possible to refinance your mortgage in a consumer proposal, you’ll have to go through the new lender’s qualification process. This is similar to when you apply for a regular mortgage. You’ll have to provide employment, financial, and credit information. You might find this difficult with a traditional lender, as your credit score is significantly affected by the consumer proposal.
If a lender approves your application, you’ll have to use any proceeds to pay out your consumer proposal.
Does A Consumer Proposal Affect Mortgage Renewal?
At the end of your mortgage term, you have to renew your mortgage or pay your balance in full. If you’re not in a consumer proposal, this is the time to shop around to see if you can negotiate a better rate with another lender.
A consumer proposal shouldn’t affect your mortgage renewal if you’ve been making your payments on time.
When you’re in a proposal, you may want to stick with your current lender as they typically won’t require a new application. Since your credit score has likely plummeted, you won’t have an opportunity to negotiate a better interest rate.
What Happens To My Mortgage If I File For A Consumer Proposal?
If you keep making your mortgage payments on time, nothing should happen to your current mortgage when you file a consumer proposal. You don’t have to sell your home, and your lender won’t come after you unless you stop making your payments.
Bottom Line
While it’s possible to renew, refinance, or get a new mortgage while in a consumer proposal, this doesn’t mean you should. You’ll have to carefully weigh the benefits and risks associated with borrowing more debt.
For advice, speak to your Licensed Insolvency Trustee before taking on a new mortgage or making any large financial decisions. They can help you determine if you can afford your monthly mortgage payments or if you should focus on completing your consumer proposal and rebuilding your credit.
