Navigating Bankruptcy and Mortgage Renewal: What Homeowners Need to Know

Bankruptcy and Mortgage Renewals

Navigating Bankruptcy and Mortgage Renewal: What Homeowners Need to Know

In Canada, the total number of bankruptcy insolvencies increased by 23.6% in 2023 in comparison to 12 months prior at the end of December 31, 2022.

For existing homeowners, the prospect of bankruptcy can be daunting, especially when considering its potential impact on mortgage renewal. Understanding how bankruptcy intersects with your mortgage is crucial for making informed decisions and planning for the future. Read on, as we tackle the typical inquiries and questions homeowners might have about bankruptcy and how it impacts the process of renewing a mortgage in Canada.

How does bankruptcy work with mortgages?

When you declare bankruptcy, your assets and liabilities are assessed, and a trustee is appointed to manage the process. Your mortgage is considered a secured debt, meaning it’s backed by collateral—in this case, your home. Throughout the duration of your bankruptcy proceedings, you must keep your mortgage payment obligations current to prevent the risk of foreclosure (power of sale). If you fail to meet these obligations, you could worsen a tough situation, leading to adverse consequences such as the loss of your property through foreclosure. It is paramount to keep your mortgage payments up to date to safeguard your home and financial stability amidst the complications of bankruptcy.

Do banks check credit for mortgage renewal?

No, banks typically do not conduct credit checks when homeowners apply to renew their mortgages. It’s important to note that your credit score and income will always play a significant role in your mortgage. While a bankruptcy filing will negatively impact your credit score, it doesn’t necessarily mean you won’t be able to renew your mortgage. Mortgage lenders be it a bank or alternative mortgage lender might consider additional variables, including your income, assets and past payment records, when evaluating your situation.

Does bankruptcy affect buying a house?

While bankruptcy certainly presents hurdles in securing a new mortgage, it does not remove you entirely from the possibility of homeownership. The extent to which bankruptcy affects your prospects of buying a house is contingent upon a multitude of factors, encompassing the specific type of bankruptcy declared, the duration since its discharge, and the trajectory of your financial status thereafter.

Some lenders might be more flexible with people who have had bankruptcy in the past, especially if they’ve been responsible with their money since then. So, even though getting a mortgage after bankruptcy can be tough, it’s still possible to achieve your dream of owning a home. It’s important to create a budget, manage your money wisely and work with lenders and mortgage professionals who have the knowledge to work around your situation.

Does bankruptcy affect interest rates?

Bankruptcy can indirectly affect the interest rates offered to you for a new mortgage or mortgage renewal. Since bankruptcy typically results in a lower credit score, lenders may consider you a higher-risk borrower, which could result in higher interest rates. However, the extent of this impact varies depending on individual circumstances and the mortgage lender’s policies.

When you file for bankruptcy, it signals to creditors that any loan, line of credit, or mortgage they provide you with could be at risk. As a result, any lending institution will view the loans they approve as high-risk and more likely that you will default. Overall, bankruptcy can have lasting effects on interest rates in Canada, making it important for individuals to carefully consider the implications before filing for bankruptcy and to take proactive steps to improve their financial standing afterwards.

Effects Of Bankruptcy: A Conclusion

Navigating bankruptcy and the process of renewing your mortgage renewal afterward can indeed be overwhelming, but it’s a challenge that can be overcome with the right approach. If you find yourself in the middle of bankruptcy proceedings or have already been discharged, it’s crucial to maintain open communication with your mortgage professional and lender. Despite the obstacles and stress you face, it doesn’t have to hinder your ability to secure a mortgage renewal or realize your dreams of homeownership one day.

With a strategic plan and disciplined financial management, you can overcome these challenges and make great progress toward your financial goals with confidence. Additionally, the team at LendToday is dedicated to helping individuals navigate through the complexities of mortgage renewal options after bankruptcy, providing guidance and support every step of the way.

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David Cumberbatch