Filing a consumer proposal can be a major relief for Canadians dealing with overwhelming debt. But for homeowners in Ontario, there’s one big question: Will a consumer proposal affect your mortgage?
The short answer: Yes, it can — but not always in the ways you might expect. Whether you already have a home loan, are looking to renew, or want to refinance or purchase a new property, understanding the ins and outs of how a debt settlement agreement affects your mortgage is key to protecting your home and planning your next financial step.
In this guide, we’ll walk you through how a consumer proposal impacts your mortgage in Ontario — from what lenders look at, to ways to rebuild your credit and regain home financing confidence.
Understanding Consumer Proposals
A consumer proposal is a legally binding agreement between you and your creditors, allowing you to pay off a portion of your unsecured debts over time — typically within five years. It’s a bankruptcy alternative and is overseen by a Licensed Insolvency Trustee (LIT).
The purpose is to make your debt manageable while avoiding the more severe consequences of bankruptcy. While a consumer proposal affects your credit, it allows you to keep your assets — including your home — if you stay current on secured debt payments like your mortgage.
Key points:
-
A consumer proposal only deals with unsecured debts (credit cards, payday loans, personal lines of credit).
-
Secured debts, such as your home loan or car loan, are not often included in the proposal.
-
Filing a proposal does not cancel or alter your mortgage contract.
The Relationship Between Consumer Proposals and Mortgages
To understand whether a proposal affects your mortgage, you need to distinguish between secured and unsecured debts.
Unsecured debts (like credit cards or payday loans) are addressed in a consumer proposal. You make one consolidated monthly payment to your trustee, who distributes it to your creditors. These debts are reduced or eliminated once the proposal is completed.
Mortgages, on the other hand, are secured by your home. Because of this, they’re not included in your proposal. However, the effects of a proposal still reach your home financing in other ways.
How it can impact your mortgage:
-
Credit Score: A consumer proposal remains on your credit report for up to 6 years from the filing date or 3 years from completion — whichever comes first. This can lower your credit score significantly.
-
Lender Risk Perception: Lenders view a recent or active proposal as a sign of financial distress.
-
Renewal and Refinancing Hurdles: If you want to renew your mortgage, refinance, or borrow again, lenders (banks or credit unions) may hesitate.
Impact on Existing Mortgages
If you already own a home and are making regular mortgage payments, a consumer proposal won’t cancel or change your existing mortgage terms. You can keep your property as long as you stay up to date on the payments and property taxes.
What remains unchanged:
-
Mortgage terms (rate, amortization) are locked in unless you renegotiate.
-
You continue making payments to your lender, outside of the proposal arrangement.
However, consider this:
If your mortgage is up for renewal soon, your existing lender may re-evaluate your creditworthiness. Some A lenders might decline to renew due to your credit score or the proposal on file. This doesn’t mean you’ll lose your home — but you might need to:
-
Renew with a B lender or private lender at higher interest rates.
-
Show proof of consistent mortgage and proposal payments.
-
Provide additional documentation like income verification or bank statements.
Tip: If your credit is improving and you’ve been consistent with your proposal and mortgage payments, many lenders will still work with you.
Mortgage Renewal Considerations
Mortgage renewals can be tricky if you’ve filed a consumer proposal. Even if your payments are current, your credit report will reflect your insolvency filing, which can limit your lender options.
Challenges during renewal:
-
A lenders (major banks, credit unions) may not offer a renewal unless your credit score has recovered and they understand the entire picture.
-
B lenders (alternative lenders) will consider your file but charge higher interest rates and may require more equity.
-
Private lenders can be more flexible but often for short terms and higher fees.
According to Equifax Canada, a proposal can reduce your credit score by 100–200 points. If your renewal is near, take proactive steps:
-
Contact your lender 3–6 months before your mortgage term ends.
-
Shop around with a mortgage broker and get pre-approved to compare rates and terms, especially if you’re refinancing.
-
Highlight on-time payments, job stability, and improved finances.
Example: Mark in Hamilton had a $350,000 mortgage at 2.5%. After his proposal and missed payments through the year, his bank denied renewal, but he found a B lender who renewed him at 4.9% for a 2-year term while he rebuilt his credit.
Obtaining a New Mortgage After a Consumer Proposal
So you’ve completed your consumer proposal — can you now apply for a new mortgage? Yes, but the road might be bumpy depending on how long it’s been since you completed the proposal and what steps you’ve taken to rebuild.
Typical waiting period:
-
A lenders generally require 2 years from proposal completion and a re-established credit history.
-
B lenders or private lenders may approve you sooner, but at higher rates and shorter terms.
What lenders want to see:
-
The proposal is marked “paid as agreed” or “satisfied” on your credit report.
-
Two or more re-established trade lines (e.g., secured credit cards, small loans).
-
Proof of stable income.
-
A down payment (20% or more is ideal for alternative lenders).
Best practices to qualify:
-
Check your credit report with Equifax and TransUnion to ensure it’s updated.
-
Obtain a letter of completion from your Licensed Insolvency Trustee.
-
Build savings and keep your debt-to-income ratio low.
Example: Tasha in Mississauga completed her proposal 18 months ago. She used a secured credit card to rebuild her credit score from 500 to 650. With a 20% down payment, she qualified for a mortgage through a B lender at 5.29%.
Refinancing Your Mortgage During a Consumer Proposal (300 words)
Can you refinance your mortgage while in an active proposal? It’s possible — but it’s not easy.
Traditional lenders rarely allow refinancing during a proposal. You may need to work with an alternative B or private lender who specializes in refinancing for debt relief.
Why homeowners refinance during a proposal:
-
To access equity in their home and pay off the proposal early.
-
To consolidate other secured debts or overdue taxes.
-
To bring down monthly payments and improve cash flow.
Requirements to refinance:
-
At least 20% equity in your home.
-
A plan showing how the refinancing will improve your financial situation.
-
Willingness to accept higher interest rates.
Example: Jason in Ottawa owed $38,000 in a consumer proposal and was struggling with his monthly payments. With $150,000 equity in his home, he refinanced with a private lender, paid off the proposal early, and saw his credit start to rebound within a year.
Strategies to Mitigate Negative Impacts
While a consumer proposal affects your mortgage in some ways, there are steps you can take to reduce its impact and rebuild your financial profile.
1. Stay current on all home loan and proposal payments.
Late payments can severely damage your chances of future financing.
2. Rebuild credit immediately.
-
Use secured credit cards responsibly.
-
Keep credit utilization low (under 30%).
-
Avoid applying for too much new credit at once.
3. Keep employment stable.
Lenders want to see consistent, verifiable income.
4. Work with a mortgage broker.
Specialists can guide you to lenders who are open to clients with consumer proposals.
5. Maintain good financial habits.
Track your spending, avoid unnecessary debt, and build an emergency fund.
These strategies not only support mortgage renewal or refinancing but also boost your financial confidence and long-term credit health.
Legal and Financial Considerations in Ontario
In Ontario, consumer proposals are governed by federal law (Bankruptcy and Insolvency Act), but the province provides resources to support residents through the process.
Know your rights:
-
You can file a proposal and keep your home if you maintain your loan as agreed.
-
Your lender cannot change your home loan solely due to a proposal.
-
You have the right to negotiate with alternative lenders or seek professional help.
Provincial resources:
-
Ontario.ca provides information on dealing with debt and housing.
-
Licensed Insolvency Trustees (LITs) in Ontario offer free consultations to help you explore your options.
📍 Always work with a licensed and reputable trustee and home financing professional familiar with Ontario’s lending market.
FAQs: Will a Consumer Proposal Affect Your Mortgage in Ontario?
1. Can I keep my home if I file a consumer proposal?
Yes, as long as you keep your mortgage payments up to date.
2. Will a proposal affect my mortgage renewal?
It can. Some lenders may not renew, but alternative and private lenders may step in.
3. Can I qualify for a mortgage after a post-proposal?
Yes. A lenders require more time and good credit. B lenders may approve you sooner with equity and stable income.
4. Can I refinance while in a proposal or bankruptcy?
Yes, often through alternative B or private lenders if you have enough equity.
5. Does a consumer proposal reduce my mortgage payments?
No. It only affects unsecured debts. Loan terms stay the same unless you refinance.
6. How long does it take to rebuild my credit?
It varies, but with good habits, you can see improvements within 12–24 months.
7. Are there lenders in Ontario who help after consumer proposals?
Yes, especially among alternative and private lenders.
Final Thoughts: Take Control of Your Mortgage After a Consumer Proposal (150 words)
A consumer proposal affects your mortgage mainly by impacting your credit and lender relationships — not by cancelling your home loan. If you stay current on your mortgage and focus on rebuilding credit, you can still qualify for a renewal, refinancing, or even a new purchase.
At LendToday.ca, we specialize in helping Ontario homeowners navigate tough financial situations — from consumer proposals to bad credit and beyond. Whether you’re renewing, refinancing, or exploring home equity options, our team is here to help you every step of the way.
Learn more about your options by speaking with a mortgage professional who has worked with borrowers who have filed a consumer proposal.
Learn: Consumer Proposal Affect On Mortgage
- Difference Between a Bank and a Private Lender: What Canadian Homeowners Need to Know - April 18, 2025
- Will a Consumer Proposal Affect Your Mortgage in Ontario? - April 13, 2025
- Can You Have More Than One Home Equity Loan? A Guide for Canadians - March 19, 2025
