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Home Equity Loan to Avoid a Consumer Proposal

How a home equity loan can help you avoid a consumer proposal

Did you know that a home equity loan can help you avoid a consumer proposal or personal bankruptcy? Home equity loans are a great option for homeowners looking for debt consolidation and debt relief options.

At this point, you might be asking exactly what a home equity loan is. That’s not a problem. Most of us avoid these financial concepts. This can actually end up cutting down our options and harming our credit rating.

But if you are facing a consumer proposal, or if you think you might be in the future, a home equity loan is one option that you should really be keeping open.

In this article, we will take you through exactly what a consumer proposal is, what a home equity loan is, and how you can use these things to come out on top. Let’s get started!

What Is a Consumer Proposal?

A consumer proposal is a type of agreement you can make with your lender to pay back a portion of your full debt. In a consumer proposal, you won’t have to pay the full amount of the loan back but will be forced to pay what is reasonable in the circumstances.

You will only enter into a consumer proposal when you are behind on your debt and you cannot continue to make your previously agreed payments. For this reason, a consumer proposal is really something that you want to try to avoid, particularly because it will hurt your financial standing in the future.

In Canada, you can begin the process of a consumer proposal by approaching a Licensed Insolvency Trustee. However, your debt must be of less than $250,000 in value.

Filing a consumer proposal can ruin your credit, complicate mortgage renewals, and your ability to borrow money down the road. So, let’s work out how to avoid it!

What Is a Home Equity Loan?

A home equity loan is a type of loan that you make against the equity that you have in your home. Let’s break that down.

Your home equity is the amount of your home that you actually own. So, your home equity is not calculated by determining how much money you have actually paid back to your lender.

Instead, equity is calculated by determining how much your home is actually worth, before subtracting from this figure the amount you still owe your mortgage lender.

So, for example, you may have a home with a market value of $400,000. If you owe your mortgage lender $300,000, then you have home equity of $100,000.

When you take out a home equity loan, you are saying to the lender that you are securing the debt with the equity you have in your home.

Home equity loan rates will vary depending on the size of your debt and your proposed repayment schedule.

How a Home Equity Loan Can Help You Avoid a Consumer Proposal

To avoid a consumer proposal, you can take out a home equity loan to repay your creditors. For example, if you are struggling to repay your mortgage, you can take out a loan against the equity you have built up in your home to pay your mortgage lender.

A home equity loan can even be used to pay off a consumer proposal.  Because lenders are using your real estate as collateral, lenders place emphasis on your equity, rather than your credit or income.

Fortunately, there are niche mortgage brokers, like MortgageBrokersNetwork.ca who can still arrange bad credit home equity loans. These loans can be approved even if you have:

  • Past bankruptcy
  • Previous consumer proposal
  • Lost job
  • Low-wage job
  • Difficulty proving income
  • Poor credit score

A lot of the big banks will not give loans to customers with any of these factors against their name. But with access to over 50 lenders,  we can make sure you get the loan you need, even if you are facing financial challenges.

How Does a Home Equity Loan Work?

A home equity loan is fairly straightforward to work out. Home equity loans for bad credit are generally designed to be short term.

Generally speaking, they are designed to be 1-year terms and can dramatically improve a homeowner’s credit score.  Think of a home equity loan like a band aid.

Band-Aid’s are used to heal wounds.  Home equity loans are very similar in that they are intended to heal your credit.  Once your credit is healed you can pay out the home equity loan. Alternatively, you can refinance it into your existing mortgage.

Instead of filing a consumer proposal or a bankruptcy, homeowners can use home equity loans to consolidate their debt and get their credit back on track.

A further option you may want to consider is a home equity line of credit (often referred to as HELOC). This is very similar to a home equity loan. But instead of receiving a lump sum, you receive access to money, up to a maximum amount.

If you plan on going this route, you will have to be proactive. HELOCs are more difficult to qualify for as both income and credit are taken into consideration.

Be Smart and Leverage Your Finances

The world of debt can be a little bit daunting for most of us. But the truth is that debt is a reality for all of us. The only difference is how we respond to our debt and how we leverage our position in doing so.

A home equity loan is one very good example of a way that you can leverage your financial position. They are a great way to save money in the long term. By using the value you have built up in your home, you can pay off your debts and avoid costly consumer proposals and high interest.

If you are looking to take out a home equity loan to avoid a consumer proposal, we are here to help. Apply online today or call us toll-free at 1-877-383-1577 to see how we can help you leverage your position to get back on track?