Over the past few months, due to the COVID-19 pandemic, financial institutions have provided mortgage deferment options to homeowners to ease the burden of debt. In fact, payments of more than $180 billion in mortgages and home equity lines of credit have been deferred by top Canadian banks.
In addition to this, collections activities, by the Canadian Revenue Agency, on new debts have also been suspended until further notice to reduce the financial strain on Canadians.
Deferrals may be up soon
You have to keep into perspective that even though the CRA collections have been paused, they will resume soon and those who are still feeling the financial impacts of COVID-19 will need to have a plan.
Similarly, the 700,000 households who have been given the benefit of deferring mortgage payments or provided flexible payment options for credit cards and lines of credit, for up to 6 months, will have to make payments when the deferral period ends.
What should you do?
What you definitely don’t want to do is wait. If you have sufficient equity in your home and a comparatively lesser overall debt, it would be easier to explore refinancing options. Refinancing your mortgage can save your credit score and help you take advantage of lower interest rates.
However, it is a bit more complicated when there isn’t enough equity to refinance. In a situation like this, time is of the essence. To save your home during a financial crisis, it is recommended to take remedial actions immediately.
Working with a good financial advisor is the first step. They will assess your entire financial profile and look at all the options available.
Sometimes a consumer proposal makes more sense than refinancing – especially when the equity is limited
What is a consumer proposal?
It is a proposal made to your creditors, where your creditors agree to accept a single payment representing a percentage of your overall debt, that you repay monthly, normally over a term of 5 years.
Consumer proposals are a viable option especially when you are facing collection action and want to protect your home.
Through a proposal, you can consolidate your debt, have a single fixed monthly payment, and can keep your home. Your creditors will have to stop collection action, so if there is no lien on your home now, they can’t place one.
If you have already started making late payments to credit, these late payments will report to the credit report for 6 years. However, a consumer proposal reports to your credit report for 3 years from when it is paid off in full. So, the good thing is, that if your financial situation improves you can pay the debt off sooner and clean up your credit history faster!
Additionally, two years after your proposal is paid in full and your credit score bounces back, many mortgage lenders will agree to lend to you again.
So, when considering filing for a consumer proposal, it is strongly recommended to consult a financial advisor who can look at the whole financial situation and help determine the best course of action for you.
At DebtCare Canada, we help you weigh all the pros and cons and do everything we can to save your home.
If you’re affected by the COVID-19 financial crisis, contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.
Filing for a consumer proposal is becoming a popular debt consolidation option for Canadians. In 2016, 62,506 Canadians filed for consumer proposal. More Canadians are opting for consumer proposal than bankruptcy, and the number of people who filed for a proposal is steadily increasing.