Will a Consumer Proposal Affect my Mortgage?

Consumer Proposals are an attractive option for dealing with debts to home owners as unlike a bankruptcy, you get to keep control of your house if you’ve built up some equity.  In a Consumer Proposal you don’t “assign” control of your assets to the trustee like you would in an assignment in bankruptcy.

Protecting an investment such as a home is important to most people so it is understandable that this question would be asked if you’re looking at options to deal with debts as a home owner.

A Consumer Proposal helps you deal with unsecured debts, so unless you’re intentionally planning on surrendering the house back to the mortgage holder before you file the proposal to your creditors, the rights of the mortgage company are not affected by you filing a Consumer Proposal.  The golden rule is “If you want to keep the house, you simply just keep paying for it”.

Therefore, the mortgage would not normally be included in the proposal.

A mortgage company will allow you to keep the property if you make sure at the time you file the proposal you’re up to date with the mortgage and you then stay up to date.  You’ll also want to make sure you’re up to date with property taxes too as they are not included in the proposal either.

It can be argued that filing either a bankruptcy or consumer proposal on unsecured debts is actually a good thing for a mortgage company… If you’re no longer juggling around an overwhelming debt load, because you’ve filed a bankruptcy or proposal, you’re actually giving yourself a better chance of maintaining your mortgage payments on time each month.

What if my mortgage is with the same lender that I have debt with that will be in my proposal?

The part of the lenders company that deals with the mortgage is usually a separate division to the part that deals with unsecured debt. The mortgage typically brings them a lot more profit over the life of the mortgage than the profit made over the life of a credit card as you normally pay a lot more interest on a mortgage than you would on a credit card.

Primarily the mortgage company wants you to pay back the money it loaned to you (I know that sounds obvious, but it’s true all the same).  If they lose money on another debt you have with them, they would be hurting themselves further if they did not allow you the opportunity to continue paying the mortgage back.

There’s a rule in the consumer proposal legislation that essentially prevents a secured creditor from amending or cancelling an agreement you had in place prior to the proposal, just because you filed a proposal.  The same rule also states they don’t have to lend you any further further credit, but they can’t cancel what’s there just because of the proposal.   What this means is that at renewal time, don’t expect to be approved if you’re asking to borrow further funds on top of what you already owe.

What happens when my mortgage is up for renewal?

Historically, most mortgage lenders will just offer an automatic renewal provided that you’re up to date at the time of renewal.  The fact you may have filed a consumer proposal does not change this.   Again, they’ve already lent you the money, so it makes sense for them to want you to pay it back (with interest) as opposed to putting you in a situation where they force you to sell (they’d not continue to make money off you from the mortgage interest if they called in the mortgage).

The only time, I’ve heard of anyone having a problem at renewal time, is either; a) you’re behind on the mortgage (in which case you’ll have a problem renewing regardless of the fact you filed a proposal) or, b) the mortgage lender has decided they no longer want to operate as a mortgage lender (which is extremely rare…).

If you’re a home owner and are wondering what to do with your debts, then feel free to contact a consumer proposal administrator if you’d like me to review your situation with you to see if a consumer proposal or any other option is right for you.

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4 thoughts on “Will a Consumer Proposal Affect my Mortgage?

  • George H.

    Hi im out of a 5 year consumor proposal just after 2 years thanks to a private lender for a second mortgage..i have been paying intrest only to the lender for almost 1 year ..the 25000 second mortgage is open to pay off anytime.come semptember ill have to renew my second and ill be able to get part commercial and private to start paying it down..my question is my 5 year current mortgage is up for renewal in june 2016 ..my credit score is still at 620..just got a unsecured credit card..and been paying it off before due date every month..i have all bills up to date and house taxes and never missed a mortgage payment…when i put the 2 mortgages together in june ill have 80000 equity..will i still be able to get a great mortgage rate with the best out there if i decide explore for For 1 mortgage 200000 ..our income is ove 100000 yealy..Thanks for your time….

    • J. Douglas Hoyes

      Hi George. In general, you will get the best mortgage rates once you have been out of your consumer proposal for two years. However, given that you have high income and significant equity, you may qualify for a good mortgage rate sooner. I would suggest you start by talking to your mortgage professional and ask them how to qualify for the best mortgage rate, and specifically whether it’s best to go with a shorter mortgage term now, in the hopes of getting a better rate once you are “two years clear” of your proposal.

  • Nancy

    We just filed a consumer proposal and our mortgage is up for renewal in 2 years. Just wondering if we will be able to go for better interest rates and if we will be able to use the equity in our house for some updates to house as it needs new windows. We have never missed a mortgage payment.

    • J. Douglas Hoyes

      Hi Nancy. Whether or not you will get a better interest rate when you renew will be dependent on interest rates at the time you renew, and what your mortgage lender is willing to do.

      In most cases when you are in a consumer proposal and you have never missed a payment the mortgage company sends you a renewal form, and you can select your renewal term and rate, just like what happens when you are not in a consumer proposal. At that point you could phone the mortgage company and attempt to negotiate for a better rate, and even ask them to increase your mortgage amount so you can make updates to your house. Whether or not they will do that will be up to them, and will depend in part on how much equity you have in your house at that time.

      In most cases you will get the best mortgage rate once your consumer proposal is completed, so getting your proposal paid off as quickly as possible is usually the best strategy for getting the best mortgage deal.


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