Consumer Proposal vs. Refinancing Your Mortgage – Which is Better for You?
If you are like the many Canadians facing overwhelming amounts of debt, you may be considering a consumer proposal vs. refinancing your mortgage to help ease the pain. Maybe you’re wondering how a second mortgage vs. consumer proposal stacks up? That’s what we’re here to help you find out.
In this week’s blog, we’ll compare making a consumer proposal vs. refinancing your mortgage. Let’s start by examining the key differences:
- preserves your credit
- provides a low consolidated monthly payment
- may eliminate payments to debts completely
- offers low interest
- repayment timeline can be shortened or lengthened
- allows you to take out cash that can be used to spend, invest or pay other debts
- enables you to move from an adjustable to a fixed-rate mortgage
In some cases, you may be able to pay your home off more quickly than you would have under your original mortgage. Mortgage refinancing to consolidate debt uses your home equity to pay debt. People choose this option because of the flexibility and the possibility of a lower interest rate and more manageable monthly payments.
A consumer proposal:
- stops interest from accruing
- stops any wage garnishments immediately
- stops creditor calls immediately
- can be repaid over as many as 60 months to lower your monthly interest free payment
- allows you to keep your car, tools, and other personal belongings
- eliminates all debt, including tax debt, with a few exceptions
- while it impacts your credit negatively in the short term, this has likely already happened if debt has become unmanageable, and gives you the chance to rebuild more quickly.
Unlike refinancing, a consumer proposal is a legal solution and can only be administered by a Licensed Insolvency Trustee (LIT).Something to keep in mind about LITs: they are administrators who earn money based on the size of the proposal negotiated. They are court-appointed officers who do not represent you. They have a job to ensure that you make a proposal that is a win for your creditors. This can be confusing because many LITs market solutions as though they represent you. The truth is that they work for your creditors as much as they work for you, meaning you aren’t protected.
So how do you choose between mortgage refinancing or a consumer proposal? If you have enough equity to refinance your mortgage, then you may not be a likely candidate for a consumer proposal. If you have enough equity that if you refinanced you could pay a portion of your debt, then an informal settlement negotiation with your creditors using the proceeds of your mortgage refinance could be the answer.
However, if you don’t have enough equity, don’t own your own home, or have less than stellar credit history, a consumer proposal might be the better option.
Whatever your situation, if you are looking for a solution to your debt problems, such as considering a consumer proposal vs. refinancing your mortgage,start by consulting an experienced financial consultant, one who will discuss all the financial options available to you, outline the pros and cons, and help you pick the best plan that suits your needs.
Call DebtCare today to discuss your options. 1 (888) 890-0888.