Mortgages and a Consumer Proposal: Renewing, Refinancing, and Buying a Home

A guide in the Consumer Proposals centre

Understand the differences between keeping an existing mortgage, renewing, refinancing and applying for a new mortgage during or after a consumer proposal.

A consumer proposal can affect your credit and future borrowing. It does not automatically mean losing your home or being refused a mortgage renewal.

The answer depends on what you need: to keep paying an existing mortgage, renew it, borrow more, switch lenders or buy another home. These are different decisions.

If you are considering a proposal, bring the mortgage details into the discussion before filing. If you are already in one, keep your trustee informed about a renewal problem, planned sale or new borrowing.

What happens to your existing mortgage?

A consumer proposal deals primarily with unsecured debts, such as credit cards, unsecured lines of credit and personal loans. A mortgage is secured against the property and normally continues outside the proposal.

Filing does not change the mortgage’s interest rate, monthly payment or term. You must keep paying it as agreed.

A proposal also differs from bankruptcy: you retain legal ownership of your assets. However, keeping ownership does not remove the mortgage lender’s rights or settle what you must offer your unsecured creditors. Home equity can affect that offer.

For those questions, read keeping or selling your home during a consumer proposal and how a consumer proposal payment is calculated. This guide focuses on mortgage borrowing and renewal.

Will a consumer proposal affect my mortgage renewal?

A straight renewal with your current lender is usually the simplest situation. You are continuing a mortgage it already holds, generally without asking for more money. Your payment history matters.

In my experience as a Licensed Insolvency Trustee, I have never had a client tell me that an existing conventional bank lender refused to renew a mortgage being paid as agreed simply because the client had filed a consumer proposal or bankruptcy.

That is my experience, not a measured approval rate or a guarantee. Every lender makes its own decision.

Two points should be kept separate:

• During the existing term: the lender cannot cancel the mortgage or demand the whole balance early solely because you filed a consumer proposal. Other defaults, including missed mortgage payments, remain a problem.
• At the end of the term: the law does not require the lender to offer a new term. It may decline to renew or offer terms you find difficult to afford.

A renewal offer also deserves attention even when approval is straightforward. Compare the rate, term, payment, prepayment rights and any costs. Ask about an unaffordable payment before accepting it. A longer repayment period may reduce monthly payments where the lender agrees, but it can increase total interest.

Federally regulated lenders must provide a renewal statement at least 21 days before the term ends, or written notice at least 21 days ahead if they will not renew. Confirm which notice requirements apply to your lender and mortgage, including where a licensed mortgage professional, such as a mortgage broker or agent, arranged it. Start your planning well before the minimum notice period.

Renewal, switching and refinancing are different

Which mortgage decision are you making?

Decision	What changes?	Why the proposal matters
Renew with the current lender	A new term for the existing mortgage, usually without extra borrowing.	The lender already holds the mortgage and knows your payment history. Approval of a new term is still its decision.
Switch lenders	A new lender takes on the mortgage.	It reviews you as a new applicant, including your income, property and credit history.
Refinance	You seek more money or different mortgage arrangements, often to use equity or consolidate debts.	The lender assesses the new borrowing. An active or recent proposal can limit the options.
Buy a home	You apply for a mortgage on a purchase.	Your down payment, income, credit history and any mortgage-insurer requirements all matter.

Stress-test requirements and the lender’s assessment of your application are separate questions. Even where a particular stress test does not apply, that does not require a lender to approve your file. Ask a mortgage professional which current rules apply to the transaction you are considering.

Can you refinance during a consumer proposal?

It may be possible, but it is generally harder than a straight renewal. The lender will consider your income, monthly obligations, credit history, home equity, mortgage payments and proposal status.

Strong income and substantial equity may help. Neither is a promise of approval. Do not commit money that a lender has not agreed to advance.

Speak with both your mortgage professional and your Licensed Insolvency Trustee before arranging the loan. The mortgage professional assesses the financing; the trustee explains how your proposal and any proposed changes fit together.

If the purpose is to pay other debts, compare the full borrowing cost and the household budget after the transaction. The home now secures the new borrowing and may be at risk if it cannot be repaid. See Debt Consolidation Mortgage: Will Refinancing Help?

What if your current lender will not renew?

Contact your mortgage broker early. A refusal from one bank is not a finding that every lender will refuse you, nor does it by itself establish that you are insolvent.

The Canadian mortgage market includes banks, credit unions and non-bank lenders. Institutional alternative lenders, often called B lenders, should not be confused with private lenders. A broker can assess the appropriate lenders and actual terms for your file.

An alternative mortgage can sometimes provide workable ongoing financing. A private mortgage may provide a shorter bridge, but its fees, payments and repayment plan need careful examination. Neither is automatically the right answer.

If the only offer leaves the household unable to meet its obligations, more secured borrowing may make the problem worse. Review the whole debt position with your trustee before accepting it.

For the wider renewal problem, read Mortgage Renewal Denied or Unaffordable: Your Options.

Check collateral mortgages and debts at the same bank

Do not assume every bank debt is unsecured because it has a separate account number. A collateral or all-indebtedness mortgage may secure more than the basic home loan.

If your mortgage lender also holds a credit card, line of credit or other debt you expect to include in the proposal, have the documents reviewed. They can affect which debts are secured, which can be dealt with in the proposal and which remain outside it.

Can you get a mortgage with a consumer proposal that is still active?

It is difficult, but not always impossible. The lender, down payment, income, property and full credit file matter.

With less than 20% down, a purchase mortgage usually requires mortgage default insurance. In practice, an insured mortgage during an active proposal is rarely available. The route generally becomes more realistic after completion and credit rebuilding. Have your mortgage broker check the insurer and lender requirements for your application.

With 20% or more down, an uninsured mortgage may be possible. Some lenders will consider a proposal file with strong income and a substantial down payment; others will not. Reaching 20% does not itself establish eligibility.

Ask a broker who understands consumer proposals to assess the file. Your trustee can confirm where the proposal stands, but cannot approve the mortgage or guarantee a lender’s answer.

Getting a mortgage after a consumer proposal

People do qualify for mortgages after completing a proposal. Completion is an important step, but the proposal notation does not disappear from the credit report that day.

Lenders will assess three main areas:

1. Proposal completion and credit history. Keep your completion documents and check the credit report for accuracy.
2. Re-established credit. Modest credit used carefully, with payments made on time and low balances, helps build a new record.
3. Income, down payment and affordability. The lender must still assess whether you can carry the mortgage and other obligations.

For the distinction between a credit score, a credit report and how long proposal information remains, read your credit after a consumer proposal or bankruptcy.

There is no single waiting period or credit score that guarantees approval across lenders and insurers. Some published insurer criteria refer to completed proposals and periods of re-established credit. Have the applicable current criteria checked for your application rather than treating a number found online as a universal rule.

Some lenders may treat a proposal similarly to bankruptcy in their own underwriting. That is lender practice, not proof that the two proceedings are the same or that every lender will refuse you.

Your first mortgage after a proposal may be with an alternative lender. Compare its full cost and suitability. If the plan is to move to another lender later, test what must change for that to happen and what you would do if it takes longer.

Missed payments or a mortgage shortfall need separate attention

A consumer proposal does not give you a mortgage payment holiday. The stay of proceedings generally protects against collection of unsecured claims; it generally does not stop a secured mortgage lender from enforcing its security.

If you receive a Notice of Sale, obtain legal advice promptly and tell your trustee. See Power of Sale in Ontario for the process and questions to ask.

If a sale will leave less than the amount owed, raise that expected shortfall before the proposal is drafted. If the demand arrives later, bring it to the trustee then. Do not assume it is automatically covered or automatically outside the proposal.

The filing date, mortgage obligation, lender’s security valuation and proof of claim need to be examined together. Dealing with an anticipated shortfall expressly can avoid a dispute later. This is a different question from continuing to pay a mortgage on a home you intend to keep.

Plan the mortgage and the proposal together

Bring the latest mortgage statement, renewal date or offer, property value estimate, details of other secured loans, household budget and proposal documents. Explain whether you want to stay, refinance, sell or buy.

A broker can assess financing. A lawyer can review the mortgage documents and enforcement issues. A Licensed Insolvency Trustee can assess the unsecured debts and explain what the proposal does and does not change.

The Consumer Proposal Resource Centre covers the wider decision. It includes the proposal timeline, years-to-pay-off-debt calculator and monthly proposal payment calculator. Calculator results are a starting point for a discussion, not a mortgage approval.

For your Ontario circumstances, contact Paul Franchi, Licensed Insolvency Trustee, or leave a voicemail at 647-492-9283.

Return to the Mortgage Trouble centre for the related guides. This is general information; mortgage terms, lender criteria and the details of your proposal require an individual review.