Can You Renew a Mortgage While in a Consumer Proposal?

Short Answer

Yes, you can easily renew a mortgage while in a consumer proposal!

Long Answer

There is a huge distinction between renewing an existing mortgage while in a consumer proposal and refinancing one.

Renewing your mortgage with your existing lender during a Consumer Proposal should be straight forward and fairly automated. The only difference is that you will not be able to move the existing mortgage to a different bank and your ability to negotiate the interest rate will be negligible. If you are with an A Grade lender (typically the national banks) your interest rate, even with rising rates shouldn’t be too bad.

The Bank of Canada raised interest rates by 50 basis points on April 13, 2022 and they have indicated that more rate hikes will likely occur in the short term. The issue of a variable rate vs a fixed rate mortgage is an ongoing concern and with rising rates being forecast, serious consideration should be given to locking in with the certainty of a fixed rate. Even with rising interest rates on mortgages, a Consumer Proposal will enable you to afford the mortgage payment as the unsecured debts (credit cards, unsecured lines of credit, incomes taxes, GST etc.) can be greatly discounted in terms of the total sum that needs to be repaid and the monthly payments will likewise be greatly reduced, especially with no interest charged on a proposal.

Ever heard the saying “CASH IS KING”?  Well, once again it is very true.  Refinancing your mortgage while in a proposal is certainly possible however you will need to qualify and lenders normally insist that the Consumer Proposal is paid out from the loan proceeds. Having cash on hand or a large amount of equity in your property makes this an easier process.

With the current interest rate environment rising for the foreseeable future, you will need to qualify at the current rates for any refinancing. In general, A Grade lenders will be the best choice however, if you get declined and apply with B Grade  lenders they will charge a higher interest rate. Regardless of the type of lender, you must have enough equity in your property to qualify without the need for mortgage default insurance.

Refinancing to pay out a Consumer Proposal is a double-edged sword.  We always encourage our clients to not risk their secured property (their family’s home) for unsecured debt (what was included in their Proposal). Proposals are always repaid without interest, so adding the Proposal balance back into the refinancing (with interest at a higher rate) seems counterintuitive.

By managing the mortgage interest rate, the type of mortgage and by reducing unsecured debt by filing a Consumer Proposal your monthly cash flow will improve greatly and as many of our clients can attest to, they have paid off their Proposal early and are on their way to a brighter financial future.