top of page

Consumer Proposals: A Guide for the Consumer

Consumer Proposals in Canada and Mortgages

Every consumer proposal has a story behind it. As a mortgage broker, I hear these stories and help clients find the right mortgage solutions, even when they're in consumer proposals. Our role is to ensure mortgage affordability and provide options that lead you back to financial stability.

What is a Consumer Proposal?
  • Definition: A legally binding debt relief process where a person proposes to pay creditors some of what they owe or spread payments over up to five years.

  • Created with a Licensed Insolvency Trustee.

  • Impact: Similar to bankruptcy in terms of credit rating effects.

Will a Consumer Proposal Affect Mortgage Renewal?

Homeowners facing a consumer proposal often worry about its impact on their mortgage renewal. Here’s what they need to know:

  • Credit Risk: Clients in or recently out of a consumer proposal are seen as credit risks.

  • Standard Lenders: Unlikely to finance a mortgage until at least two years of clean credit history post-proposal.

  • Requirements: A 20% down payment and proof of credit rebuilding are needed.

  • Alternative Lenders: More likely to consider these clients, assessing their individual situations and risks.

How Long After a Consumer Proposal Can Clients Get a Mortgage?

The waiting period depends on the lender:

  • Traditional Lenders: Require credit repair before considering a new mortgage. 2 years after being discharged.

  • Alternative Lenders: More flexible, willing to work with clients even during the consumer proposal. Day 1 you can get a mortgage

  • Documentation: Necessary to prove creditworthiness, you need to have re-stablished credit.

Mortgage Rate Expectations in a Consumer Proposal

Clients should expect higher mortgage rates during a consumer proposal due to the associated risks. As they rebuild their credit, they might negotiate better rates upon renewal.

Key Strategy: Focus on what YOU can afford monthly rather than just the mortgage rate.

Can Clients Refinance to Pay Off a Consumer Proposal?

Yes, they can! Refinancing might be the quickest way to pay off a consumer proposal. If you have equity, the faster you pay off your consumer proposal the faster you will get to BANK mortgage rates!

Benefits of Refinancing to Pay Off a Consumer Proposal

Refinancing can be beneficial for several reasons:

  • Rebuild Credit Sooner: Pay off debt to start fixing credit.

  • Retain Mortgage: Avoid issues with banks that hold their other debts.

  • Lower Monthly Payments: Debt consolidation can reduce monthly expenses.

  • Simplify Life: Easier to make purchases and pass credit checks.

  • Credit Applications: Begin applying for credit again, possibly starting with a secured credit card.

Rehabbing and Fixing Credit After a Consumer Proposal

Rebuilding credit takes time and responsible management. Here's how to start:

  1. Review Credit Report: Fix any errors, especially those related to late payments post-proposal.

  2. Use Credit Responsibly: Build a credit history within limits.

  3. Pay Bills on Time: Aim for three to five business days before the due date.

  4. Show Stability: Maintain long-term accounts and avoid opening new ones unnecessarily.

  5. Monitor Credit Report: Continuously check for and correct errors.

Disadvantages of a Consumer Proposal

The main disadvantage is the significant hit to the credit rating. Clients should explore all other debt solutions before opting for a consumer proposal. Consistent payments are crucial to avoid reverting to their initial financial situation.

Final Thoughts on Consumer Proposals

Getting out of debt is harder than getting into it. A consumer proposal can help clients committed to better debt management. Their personal stories matter—someone who’s back on their feet after a job loss might be worth the risk.


bottom of page