How to Keep your House

Drawing of house
December 8, 2022

As house prices plummet and mortgage rates skyrocket many Canadians will be struggling with mortgage payments.  In the face of the most inflationary economy in recent history, we would like a share a few strategies to help you keep your house

From an insolvency perspective, in recent years, many insolvent individuals have chosen to file a proposal rather than a bankruptcy because of the need (in a bankruptcy) to settle for the equity in their homes.  If you filed for bankruptcy and had no equity at the time of filing, but your house price increased during the bankruptcy you would be liable to pay the upside into your bankruptcy in order to keep your house

If you are already bankrupt and your equity position has reversed such that you no longer have any equity in the property you must call your LIT to renegotiate any existing settlement arrangements.  If the value of equity in your home has decreased, and you haven’t yet filed a proposal, you may want to rethink your decision and file a bankruptcy – again, you should talk to your LIT about the consequences.

It is worthy of note that each registered owner of a house, in an insolvency filing, is entitled to claim an exemption for up to $10,783 of the value of their property, so if you and your spouse are each joint tenants that value is doubled.  The exemption is extended to each debtor and not to a house. But the exemption is restricted to a principal residence only, the exemption is to each debtor, not to every or any property owned.  Nonetheless, you would be able to keep your house

In the past few years interest rates have been kept very low to encourage people to take on more debt, maintaining liquidity in the banks.  Since low rates were the main driver of high inflation the Bank of Canada has been increasing the overnight rate to cool off the inflation they created.  But a lot of mortgagors have been caught with their pants down and have over leveraged their properties.  Now they are finding they cannot afford renewals at the higher rates.

If you took out a $400,000 mortgage with a 25 year amortization at 1.4% – that is now approaching renewal at 6.9% – your current payments would be about $1,580.  If you renewed for the remainder amortization period of 20 years, your balance would be $330,000, and your payments would be $2,520 per month.  If you changed the amortization to 30 years, your payments would be more manageable at about $2,152 – banks are very aware of this situation and are extending the amortizations out to as much 40 years.

It is also important to consider other debts that are being serviced, bearing in mind there is a huge difference between “servicing debt” and “paying debt”.  If you are constantly paying at or near minimum monthly payments you are servicing debt, you are not paying it down.

Filing a bankruptcy or a proposal to get relief from unsecured debts such as credit cards, lines of credit, loans, taxes, CERB or other benefit overpayments can free up cash flow allowing you to meet your mortgage obligations and keep your house. 

Finally, it may be beneficial, depending on your circumstances, to consider renting out a room, perhaps to a student, to provide a little extra income.

For more information call us for a free consultation at 519-646-2222