Can You Be Denied for Mortgage Renewal?

It’s the end of the mortgage term – what happens? In Canada, renewing your mortgage once it reaches its terms, regardless of whether you’ve paid it up or not, is a standard procedure. However, this shouldn’t be taken lightly because mortgage renewal isn’t guaranteed.

When applying for a mortgage, you’ll sign a contract that sets the terms of the loan, such as amortization, repayment duration, and applicable interest rate. You can find another lender, or another mortgage broker in Toronto or renew the mortgage with your current lender once the mortgage term ends.

Can a bank deny mortgage renewal in Canada? The renewal of your mortgage isn’t guaranteed, as aforementioned. Your eligibility for the mortgage renewal depends on whether you meet the minimum conditions required by your lender, such as your creditworthiness, income, employment status, and debts, among others.

So, what happens if your mortgage renewal is denied and the bank won’t renew your mortgage? If renewal is declined, you don’t have a choice but to find another lender who will offset your current lender’s outstanding debt. Repaying your mortgage on time, maintaining a good credit score, and communicating with your lender when things are thick, can help you avoid mortgage renewal denial. Life is full of surprises; your status can change after getting a mortgage. Your lender is human, and they understand that changes are part of life.

It’s imperative to communicate or discuss any changes of status with your lender. Discussing your situation with your lender is an act of good faith—it safeguards your credibility and reduces the chance of mortgage renewal denial.

What is Mortgage Renewal?

Mortgage renewal is the process of refreshing an existing mortgage with your current lender. This process offers the opportunity to renegotiate the terms of your mortgage, including the interest rate, payment frequency, and amortization period, to match your current financial situation.

The renewal process typically begins several months before your current mortgage term ends. Your current lender may send you a mortgage renewal notice outlining the new terms and offering you the option to renew. It’s essential to review the terms and conditions of the renewal offer carefully to ensure they’re in sync with your current financial situation. You may want to negotiate the terms with your lender to get a better rate or more flexible terms.

Does credit score affect mortgage renewal? Sure it does. Your eligibility for mortgage renewal depends on numerous factors, creditworthiness being a major factor. Other factors that can affect mortgage renewal include the following:

• Lender policies
• Employment status
• Changes in property value
• Current financial status, and
• Payment history

The renewal process is typically straightforward but can vary by the lender. As long as you make timely payments and your finances are still okay, your renewal will likely be accepted by your lender.

You don’t need to do a credit check since you consented to this when applying for the mortgage. The renewal application can, however, be rejected if your credit score has significantly plummeted.

Reasons Why You Were Denied for Mortgage Renewal

Mortgage Renewal Has Been Denied by Your Current Lender

It can be frustrating when your mortgage renewal is declined by your current lender. However, there are many ways to navigate this situation, as discussed below:

Explore Other Lenders

Just because your current lender has declined your mortgage renewal doesn’t mean that other lenders won’t finance you. Shop around and explore other options, including mortgage brokers who may have access to a wider range of lenders and products.

Consider Alternative Financing

There are other financing options available if you can’t secure a traditional mortgage, such as private lenders or credit unions. These alternatives may not be ideal as they typically attract higher interest rates.

Selling Your Property

For many people, buying property is a major financial decision. However, you may be forced to dispose of your property to address your financial situation. If mortgage renewal is declined by your current lender, you can sell your house to secure a mortgage that matches your finances. This may not be an ideal option because you need to move on as soon as possible. For instance, if the end of your mortgage term is so close, you may not have sufficient time to complete the property sale.

Mortgage Renewal Has Been Denied by Your New Lender

Mortgage renewal can also be declined by a new lender. This typically happens when your financial situation doesn’t measure to their standards.

You may want to consider other options to navigate your current situation. The problem is that those other options may be costlier. Here’s what you can do if your new lender rejects your mortgage renewal application:

Find out the Reason for the Denial

The first step is to find out the reason for the lender’s decision. Ask the lender to provide specific reasons for the decline. This will give you a better understanding of the situation and help you decide on the next steps.

Review Your Credit Report

Your credit report is a critical factor in determining your eligibility for a mortgage renewal. Review your credit report to ensure there are no errors or issues that may have influenced your lender’s decision. If there are errors, you can dispute them with the credit bureau.

Consider Getting a Co-signer

If your credit score or financial situation has changed since you first obtained the mortgage, consider getting a co-signer. A co-signer is someone who signs the mortgage with you and takes responsibility for the loan if you default.

Approach Other Lenders

Don’t give up after being declined by one lender. Shop around for other lenders— they may be willing to offer you a mortgage renewal. Consider working with a mortgage broker who can help you get a lender that best suits your needs.

Improve Your Financial Situation

If your mortgage renewal denial was based on your financial situation, consider improving your current financial status. This may involve paying down debt, increasing your income, or reducing your expenses.

Seek Professional Advice

If you still have trouble with your mortgage renewal, you can seek professional help from a mortgage broker, financial advisor, or legal professional. They can point you in the right direction or ideal lenders.

What You Should do if You Were Denied for a Mortgage Renewal

Reach Out to a Private Lender

You’ll likely approach another lender if your current lender declines your mortgage renewal application. Unfortunately, lender B can also decline your renewal application.

In such instances, you can reach out to a private lender. However, working with a private lender may not be the best option owing to their higher interest rates. As you know, high-interest rates will eventually cost you more in the long term. That said, working with a private lender should be a last resort.

Hire a Mortgage Broker

You need to act fast if your mortgage renewal is declined or if you think it will not be approved. That said, you will have to find an alternative or another option. Unfortunately, you may not have sufficient time to shop for an ideal lender. Also, you may not know where to find a lender who will be willing to help you. At this point, many people looking for a quick fix are typically frustrated, and they’re likely to ask, “can a mortgage broker help me renew my mortgage if I was denied a renewal?”

Regardless of your options, a mortgage broker is your go-to solution. Mortgage brokers typically work with mortgages, so they should be a primary point of reference for people who have been denied mortgage renewal. A mortgage broker can help you find lenders who can help address your specific needs. The good thing is that many mortgage brokers offer these advisory services free of charge.

Consider Selling Your Home

There are many solutions to mortgage renewal application denials. In the worst-case scenario, you can sell your home if your mortgage renewal application has been declined by your lender. While selling your home may not be a good idea or option, you may have to do so to cut your losses and move on.

Defaulting on your mortgage negatively impacts your creditworthiness and future borrowing prospects. Selling your property is a temporary solution, so you should consider a more permanent solution, like improving your financial situation. In the meantime, dispose of your home to pay the outstanding balance and use the remaining money to improve your financial situation.

Find a B Lender

If a mortgage renewal hasn’t been approved by your current lender (A lender) you can approach another lender (B lender). “A Lenders” typically constitute bank credit unions. On the other hand, B lenders are institutions that finance people with bad credit ratings and trust companies. B lenders are more likely to lend to people with low credit ratings and high debts. However, you can expect their interest rates to be much higher.

Declined for a Mortgage Renewal? – Get Your Answers Now

FAQs

1. 1. When do you have to renew your mortgage?

You should renew your mortgage at the end of your mortgage term.

2. 2. Can a bank refuse to remortgage?

Mortgage renewal is subject to numerous factors. Your bank will review your repayment history, current financial situation, and more to determine your eligibility for renewal. That said, a bank can refuse to remortgage.

3. 3. Do you have to qualify for a mortgage renewal?

Yes, you must meet your lender’s specific requirements to qualify for renewal, including a good repayment history and being in employment, among others.

4. 4. What should you do following a mortgage renewal denial?

There are many options available if your mortgage has been declined, including approaching another lender, contacting a mortgage broker, and selling your property, among others.

5. 5. Does credit score impact mortgage renewal?

Yes, a significant decrease in your credit rating will adversely affect the chances of a mortgage renewal approval from your current lender.

6. 6. What happens if a mortgage renewal is declined?

When an “A” lender, like large banks, monoline lenders, and credit unions, declines your mortgage renewal, you can approach another A lender and explain your situation. If the other lender won’t hear you out, it’s time to approach a mortgage broker. They will help you find lenders who can help you.

7. 7. Do mortgage renewals require credit checks?

Having a good credit score is a prerequisite for qualifying for a mortgage renewal. Your lender can access the details of your creditworthiness whenever they wish because you gave them the right to do so when applying for the mortgage.

8. 8. Is it a good idea to sell my home if my mortgage renewal is declined?

Yes and no! You may sell your home if you have no other option. However, you first exhaust all other options before going this route.