Is Refinancing a Good Idea Before or After Bankruptcy
When debts become too overwhelming, one of the first solutions you may consider is filing for bankruptcy. However, navigating through homeownership may not make such a process so simple. You have to determine whether refinancing the mortgage will be better before or after bankruptcy.
Refinancing the mortgage before bankruptcy
Getting a bad credit mortgage is possible before or after the declaration of bankruptcy, but your creditworthiness may reduce under those circumstances. The accumulated debt and delayed bill payments you may have before filing for bankruptcy make you a high-risk borrower, which will lead to most lenders refusing to give you the loan. However, you can still get the help you need from an equity bank before you file, especially when you get assistance from reputable mortgage brokers.
Brokers will give you sound advice about the lenders to approach, but you also need to work with a bankruptcy trustee. They will help you figure out whether your property is exempted from the bankruptcy proceedings depending on the equity you have left. You should also avoid taking cash from your home value before bankruptcy to avoid complicating the process further.
Refinancing a mortgage after bankruptcy
One of the advantages of a bad credit mortgage is that it gets rid of unsecured loans you may have. However, even with the debt discharge, you will have to wait for at least two years before you can get a loan from a bank. Having fewer debts may also be good for you, but when you need financial assistance from mortgage lenders, you will need new credit accounts to prove that you are managing the funds responsibly. Before the two years elapse, even after you clear most of your debt load, your credit score will still be poor.
If your house has enough equity, you can refinance the mortgage and get enough funds to cater to the bankruptcy. However, refinancing even after bankruptcy is still possible, even before the amount is discharged. With this option, you could enjoy several benefits such as:
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It gives the option of taking out home equity to cater to other expenses
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Getting an opportunity to make lower payments, which allows you to manage your monthly income better
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You get a chance to discharge the bankruptcy, which means your two-year period will start sooner
There are also disadvantages of mortgage refinancing after bankruptcy.
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You have to meet specific conditions to qualify for refinancing after bankruptcy
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You can only work with equity banks if your current lender is not willing to renew the mortgage
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Your other alternatives are private lenders and Mortgage Investment Corporations. Either way, you will have to pay higher rates.
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Passing the Canadian mortgage stress test is mandatory when refinancing after bankruptcy. It proves you can pay back the loan with the rates provided by the lender with an additional 2% or the 5-year benchmark rate by the Bank of Canada.
Conclusion
Checking with a bankruptcy trustee is crucial if you need a bad credit mortgage before bankruptcy. After bankruptcy may be a better option, especially when you have a reputable mortgage broker to assist you.
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