Lara came to us late last year with over $75,000 in unsecured debts. She owns her own condo; but since she first bought it she has since retired from work, and relies solely on her government pension and OAS for income. Private second mortgage
As a result, she finds herself dipping into her available credit facilities to supplement her income.
Unfortunately, once balances develop on your credit cards, they become a beast which needs to be fed each month as a result of high interest charges and minimum monthly payments.
It often happens that people who start down this path need to tap into their other credit lines in order to service the credit they have begun to use. Like a forest fire started with a small spark, the compounding effect can be quick and dramatic.
After two or three years of this, Lara was at her wits end. $75,000 in debt was choking her — the minimum monthly payment over $2,000!!
She could not keep this up any longer.
By the way, Lara actually has an excellent personal credit history. She has never had a late payment; so notwithstanding high balances, her score is respectable. She was wondering if a consumer proposal was the right solution for her situation.
But the answer to that question is NO.
The reason is her first mortgage is relatively small and she has almost $300,000 equity in her home.
A trustee assessing her circumstances could not offer her a consumer proposal as an alternative because she actually has a husky net worth, and is by no means insolvent.
The obvious solution is she sell her condo, pay off her debts, and either rent a property or buy a cheaper, smaller one.
Not surprisingly, Lara was very much against this.
She argues the monthly rent on a similar condo apartment would be far higher than she currently spends on mortgage, maintenance and property taxes. AND her rent payment would be helping her landlord pay off THEIR mortgage, not hers.
She wanted to avoid downsizing too — because she would be faced with real estate commissions on the sale of her condo, as well as land transfer taxes on the new condo. There may not be enough left over to pay off all her debts.
So… how did we keep Lara in her home AND rid her of the beastly debt?
We decided to leave her current first mortgage intact — it will mature at the end of June 2019 – in one and half years. This way, there is no prepayment penalty AND no increase to her monthly mortgage payment.
Instead we arranged a special private mortgage for Lara – tailored to mature on the exact same date as her first mortgage. At that time, she can seamlessly combine both mortgages into one new one.
We knew cash flow is a concern for Lara, so this mortgage was structured so there is NO MONTHLY PAYMENT.
We made the mortgage loan amount large enough so that Lara can prepay the entire interest obligation right at day one. In fact, the mortgage covered ALL COSTS AND FEES. The net result being:
Lara will be able to live debt free once again, and in fact can start to save money each month. Most importantly, she gets to keep her home and not sell it off to rent and pay someone else’s mortgage.
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