Your debt has become unmanageable; you can’t sleep at night; and your stress levels are at an all time high. You’re desperate to reduce those balances. Your main concern is that you own your home and there is equity in it.
If your credit rating is still good – a viable option may be to refinance your home to reduce your debt. However, if you are fairly new into your mortgage and have opted for a fixed rate, the penalty fees associated with refinancing could cost thousands of dollars. Also, many lenders now register a collateral mortgage against property, which gets tied into other debt facilities you may have with that lender. This means all of the bank’s debt has to be paid out on refinancing. Some lenders also use an Interest Rate Differential or IRD on fixed rate mortgages to calculate the penalty. The amount is substantially greater than the three month interest penalty used for variable rate mortgages. So, ensure you analyze the full cost of refinancing before you sign the mortgage documents.
If your credit has been damaged, refinancing may be more difficult and a consumer proposal may be the best option for two reasons.
First, a consumer proposal is a legal binding agreement filed by a Trustee in bankruptcy. A proposal offers a compromise of your debt to your creditors. The debt balances could be reduced by 30% to 60% depending on your circumstances. A proposal will affect your credit score for three years from completion of the proposal, but you have dealt with your debt problem.
Second, the equity in your home remains intact – unsecured creditors can’t access your assets in a proposal. So, your debts have been substantially reduced; your monthly payments have been reduced and you are able to keep your home.
Every client has different needs and circumstances. For advice on the best option for you, contact one of our Trustees to discuss further.