A consumer proposal can be the right way out of unmanageable debt, but it also makes borrowing harder for a while. Many lenders won’t consider you until the proposal is finished, and some want more time after that. Private lenders are often more flexible, especially if you own a home with equity.
A quick refresher
A consumer proposal is a legal agreement, arranged through a Licensed Insolvency Trustee, to repay creditors part of what you owe, usually over several years. Secured debts like your mortgage are generally not part of the proposal, so you keep paying your mortgage as usual.
Can you get a private mortgage while in a proposal?
Often, yes, if there’s enough equity in your home. Private lenders focus on the property and your plan more than your credit report. Common reasons homeowners in a proposal look at private mortgages:
- Paying the proposal out early so the rebuilding period can start sooner
- Catching up on mortgage or tax arrears that the proposal doesn’t cover
- Renewing an existing mortgage when the current lender won’t
- Buying out a former partner after a separation
Paying a proposal off early
Many proposals allow early payment of the remaining balance. Using a private mortgage to do this can:
- Mark the proposal as completed sooner
- Start the clock on rebuilding your credit earlier
- Replace several years of proposal payments with one mortgage payment
It’s important to compare the cost. A private mortgage carries fees and a higher rate. Talk to your trustee about early payment and get a payout figure in writing.
After the proposal is finished
Once your proposal is complete, ask your trustee for your certificate of full performance. Lenders will want to see it. From there, rebuilding credit with on-time payments and low balances is the path to an alternative lender and, later, a bank. See your exit strategy.
What lenders will ask for
- Your proposal documents and current payout statement
- Proof your mortgage and property taxes are current, or the amounts owing
- A clear plan for the next one to two years
See the full document checklist.
Be careful about timing and cost
A private mortgage solves a short-term problem. Make sure the numbers work. If the costs would use up most of your equity, or there’s no realistic exit, other options may be better. A good broker will tell you when that’s the case.
Talk it through
A licensed broker can review your proposal, your equity and your goals, and tell you whether a private mortgage makes sense now or later.
This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.