Pay Off a Consumer Proposal With Home Equity? (The Math)

Can You Pay Off a Consumer Proposal With Home Equity?

The calculation framework, a worked example, and when it's worth it

Whether to pay off a consumer proposal early with home equity: the equity → refinance → payout → fees → remaining equity framework, a worked example, when it makes sense, and when to think twice. Transparent, even-handed.

Can you pay off a consumer proposal with home equity?

Yes. If you own a home with enough equity, you can refinance to pay the remaining balance of your consumer proposal in full and complete it early. For the right borrower it’s one of the fastest routes back to prime mortgage pricing, but it is not universally the best move.

The mechanism: because the proposal is still active at the moment of funding, you refinance through a B-lender or private lender, and the proceeds go to your Licensed Insolvency Trustee to pay the proposal out. Once it’s paid in full you receive a certificate of full performance¹, the recovery clock starts, and a proposal term of up to five years¹ can compress to the time it took to close. For the service, see our mortgage after a consumer proposal page. General information, not advice.

The calculation framework

Before anything else, run the numbers in this order. It tells you quickly whether an early payout is even feasible:

Home value − existing mortgage = your equity.
Maximum refinance: commonly up to about 80% of value with a B-lender, or 65–75% with a private lender (illustrative and lender-dependent). This is the ceiling the lender will advance to.
Refinance amount available = maximum refinance − existing mortgage balance.
− Proposal payout (the amount to settle in full through your trustee).
− Fees (lender, broker, legal).
= Remaining equity.

Why 80% is the practical ceiling: banks can’t lend above 80% of a home’s value without mortgage insurance², and insurance isn’t available on an ordinary refinance (the only exception since January 15, 2025 is refinancing to add a secondary suite)³. Borrowing beyond 80% means a private second mortgage at a higher rate plus fees.

If the refinance amount available doesn’t comfortably cover the payout plus fees while leaving a sensible equity cushion, an early payout probably isn’t the right move right now. If it does, keep going.

A worked example (illustrative)

Illustrative figures only, not a quote: a home worth $700,000 with a $400,000 first mortgage has $300,000 of equity. At an 80% ceiling, the maximum refinance is about $560,000, leaving roughly $160,000 above the existing balance. If the proposal payout is $45,000 and fees are $8,000 (both assumed), that’s $53,000 used, leaving about $107,000 of untapped borrowing room after the proposal is paid out.

On those numbers, the payout is very feasible. On a tighter file (say a $500,000 home with a $380,000 mortgage) the 80% ceiling of $400,000 leaves only about $20,000 above the balance, which may not cover a payout plus fees at all. Same strategy, completely different answer. That’s why the framework matters: the decision is entirely file-specific.

When an early payout makes sense

It tends to be worth it when several of these are true: you have ample equity so the payout leaves a healthy cushion; you’re early in a long proposal (settling a 60-month term in year one saves the most time); your credit is already rebuilding, so an earlier completion actually brings an A-lender exit closer; and the premium on a short alternative mortgage is less than the years of premium pricing you’d otherwise carry waiting for the proposal to finish.

Timing also matters for your credit report: a proposal is removed 3 years after you pay it off, or 6 years after you signed it if that comes first⁴. Paying early moves the first of those dates forward. In that situation, the early payout compresses your whole recovery timeline, and the interest you pay to do it can be recovered on the eventual A-lender refinance.

When to think twice

It’s often not the right move when the payout would drain most of your equity, leaving you thinly cushioned; when your real bottleneck is credit rebuild, not the proposal itself (paying it out early doesn’t instantly create the seasoned trade lines A-lenders want); when you’re near the end of the proposal anyway, so there’s little time to save; or when the fees and rate on the refinance outweigh the time saved.

Paying out early also means taking on a new, higher-cost mortgage: you’re trading one obligation for another. That’s fine when it shortens the road to prime, and a bad trade when it doesn’t. Honest math, not optimism, is the deciding factor.

Get the numbers modelled properly

The only way to know is to run your actual figures (value, mortgage, equity, payout, fees) and compare the accelerated path against simply completing the proposal. We model the full lifecycle cost both ways and won’t recommend a payout that doesn’t measurably improve your timeline to A-lender pricing.

Mortgage Squad Advisors (FSRA #13737) arranges the refinance where it makes sense and maps the exit either way. See the mortgage after a consumer proposal page, compare the stages in our active vs discharged guide, or get a confidential assessment — no credit pull to begin.

Sources

Primary sources for the rules and figures above. Rules, rates and lender policies change, so confirm anything you plan to act on with a licensed advisor.

1. Office of the Superintendent of Bankruptcy, You owe money: consumer proposals: How a consumer proposal works: filed through a Licensed Insolvency Trustee; the term cannot exceed five years.

2. Justice Laws (Canada), Bank Act, s. 418: Restriction on residential mortgages: A bank may not lend or refinance above 80% of a home's value unless the loan is insured.

3. Department of Finance Canada, Mortgage insurance rule changes to enable homeowners to add secondary suites: Since January 15, 2025, insured refinancing is allowed only to build a secondary suite, within stated limits; other refinances cannot be insured.

4. FCAC, What information is on your credit report and how long it stays: Credit bureaus usually keep judgments on a credit report for 6 years; TransUnion keeps them 7 years in Newfoundland and Labrador, Ontario and Quebec. Late/unpaid accounts up to 6 years. A consumer proposal is removed 3 years after it is paid off or 6 years after signing, whichever comes first; a bankruptcy usually 6 years after discharge (7 years at TransUnion in NL, Ontario, PEI and Quebec); 14 years for more than one bankruptcy.

Frequently asked questions

Can I refinance with a big bank to pay off an active consumer proposal?

Usually not. While a proposal is active, most A-lenders will not refinance, so the payout is normally arranged with a B-lender or private lender. The goal is to use that higher-cost mortgage as a short bridge, then refinance to prime pricing once the proposal is complete and your credit has been rebuilt.

How much of my home's value can I borrow to pay out a proposal?

Commonly up to about 80% of the home's value on a first-mortgage refinance, and often 65-75% with a private lender (illustrative, lender-dependent). Refinances cannot be insured except to add a secondary suite, so going above 80% means a private second mortgage with a higher rate and extra fees.

Does paying off a consumer proposal early help my credit report?

It can. The Financial Consumer Agency of Canada says Equifax and TransUnion remove a proposal 3 years after it is paid off or 6 years after you signed it, whichever comes first. Paying early can bring that removal date forward, but you still need new, on-time credit history before A-lenders will usually approve you.

What costs should I budget for an early proposal payout?

Budget for the payout amount your trustee confirms, plus the refinance costs: lender fee, any broker fee, legal fees, an appraisal, and any penalty for breaking your existing mortgage. Alternative and private mortgages also carry higher interest rates, so compare the total cost against simply finishing the proposal.