Homeowners in consumer proposal want to renovate their home

Cathy and Connor Brown own a lovely detached home in Barrie, and their lives appear to be firing on all cylinders. The reality is they ran into some debt problems several years ago, and found relief by filing a joint consumer proposal with Hoyes, Michalos in the summer of 2014. They agreed to pay $1,000 per month for five years towards their debts.

Recently they decided they want to build an extension onto their home, and they approached their bank to increase the mortgage. They thought they would be approved — they have great jobs, make good money, and have been loyal clients since they were kids.

But, of course, no bank will give them an increased mortgage or loan of any kind while they are still in a consumer proposal. In fact, they will probably want to wait until two or three years after it’s completed before they will do so.

The Browns found me at AskRoss and read how I help others complete their consumer proposals ahead of schedule. Cathy called me and shared their story.

I could tell there was plenty of equity in their home, so I was pretty sure I could help. We always look at two approaches:

  1. Does it make sense to break the current mortgage and take out a larger first mortgage with an alternative lender

OR…

  1. Leave the current mortgage alone, and tap into the home equity with a private second mortgage.

In this case, it only made sense to consider a private second mortgage. This is because the Browns had only recently renewed their first mortgage with the Bank. It has a great interest rate — but to break it now would incur a massive

prepayment penalty — too bad we did not meet BEFORE their renewal date.

So we approached our friends at Fisgard who offered a mortgage of $125,000 on reasonable terms. I especially like that Fisgard’s mortgage offerings are FULLY OPEN – meaning at any time they can be paid off without incurring a prepayment penalty.

And, their mortgage renewal process is seamless — after one year they send a renewal letter to each client inviting them to stay on and they provide clear details as to the new terms.

The new mortgage funded last week. Most of the proceeds will go towards renovating their home, but some other important milestones were hit:

  • The remaining balance of $16,000 was paid off from their consumer proposal. This gives them a head start on rebuilding their personal credit history by almost a year and a half.
  • Cathy owed a few thousand to CRA (Revenue Canada) and that was paid off.
  • A couple of minor credit card balances were paid off too = a complete reset of their personal finances in other words.

Yaaay Browns for the triple-win!!!

The takeaway

If you are a homeowner and you have filed a consumer proposal, you do still have options if you need to tap into your home equity. You can “Think Outside of The Bank

Cathy and Connor are now able to build that home extension, and get a jump start on their journey back to an excellent credit history and completely rebuilt personal finances.

I expect within two years, either their own bank will consolidate both mortgages into one single mortgage, or we can easily find an alternative lender who will be happy to do so for them.

Financial Literacy Leader of the Year Award 2017 Crest
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