How Home Equity Can Be Used to Payoff CRA Debt
Any debt can have serious legal consequences if it goes unpaid. The Canada Revenue Agency (CRA) charges compounded interest on a daily basis on your unpaid debt until you pay off the full balance. Turning a blind eye to your CRA debt does not make it go away. It’s better to do everything you can to pay up in full now than struggle with increasing debts later.
Sometimes, the debts are not a heavy amount. It’s common to file your personal tax returns and find the CRA holding you accountable to pay a bit more. This usually happens if you didn’t pay up for a couple of years. It’s hard to be deluged with debts when you have large ongoing expenses such as a home mortgage or school fees. At such times, tighten your purse strings, and work a little harder to get debt-free before you are slapped with interest charges or penalty fees.
Why Home Equity to Payoff CRA Debts?
Unfortunately, the amount you owe to the government cannot be negotiated. The debt amount can run from $40,000 to $250,000. This is a common problem visible in small businesses and start-ups. If you don’t pay your outstanding debt in full, there are a number of unpleasant consequences:
- The CRA reserves the right to secure 50% of your gross earnings.
- They can freeze your bank account.
- Seize your funds from the bank account.
- Withhold tax credits such as GST or refunds, if you received any.
- Claim a lien on your property (possession) until the debt is paid from sale or financing.
There is one way to ensure you don’t have to sell your home or face a lien on your property: pay in full by using your home equity.
How to Use Your Equity to Pay Your CRA Debt?
It’s best to rely on an expert for help. An experienced mortgage broker who has knowledge about tax debts can help you handle the CRA. Apart from having access to a network of money lenders who can help you clear your CRA debt, they can also guide you about home equity loans to bail you out.
Why home equity loan? This is because traditional lenders can refuse you if you have CRA debt. Neither will they agree to refinance your mortgage if the CRA debt is not paid. There are a few ways to use home equity to pay off CRA debt:
- Refinance the mortgage to a B-lender (alternative lender) and use the new mortgage amount to pay off the CRA debt.
- Borrow from another private mortgage lender to pay the debt, then refinance later.
- Have a Home Equity Line of Credit (HELOC) that gives you room to pay the CRA debt? Send a cheque to pay it off at low interest rate.
- Reduce your Home Equity Line of Credit balance by saving earnestly and pay it off. Then refinance and use the HELOC balance into your mortgage.
- You may consider borrowing from a family member or friend to pay off the debt, then consider refinancing your mortgage to pay back the generous lender.
Some homeowners may not be considered good candidates for lending even if they attempt to resolve the issue. This occurs when the income doesn’t meet the stress test qualifications or if they have an unclear source of income that’s hard to verify or if their credit history is disapproved by traditional money lenders.
Collin Bruce – Canada’s #1 Mortgage Broker
Call an experienced, considerate, smart mortgage expert who can help you out of your CRA debt by using your home equity. Collin Bruce Mortgage is Canada’s #1 broker for mortgage funding. We can help you refinance, pull out equity for CRA payments, help in investments, debt consolidation and more. Call us or contact us on our website to see if you qualify.