*This post was created in collaboration with Mortgage Maestro.
Every three to five years, you’re required to renew your mortgage. While renewing your mortgage can lead to lower interest rates, it can also lead to a denial. If your finances or credit has suffered recently, you may be wondering, “Will my bank deny my mortgage renewal in Canada?”
There are several situations where a mortgage renewal gets denied. If this happens, it’s important to understand what options are open to you. Thankfully, there are several things you can do, both before and after rejection.
Can A Bank Deny Your Mortgage Renewal In Canada?
The most common mortgages in Canada have an amortization period of 25 years and a fixed-rate mortgage term of five years. During that term, a homeowner will make monthly mortgage payments, interest included. At the five-year mark, they will need to either renew their existing mortgage with their current lender or shop around for another if they’re denied or simply want to find a better rate.
Each mortgage lender has their own set of requirements for mortgage renewals. As such, your ability to qualify for renewal will largely depend on the lender you want to renew your mortgage with. That said, there are some standard reasons a lender may reject your application for renewal.
Reasons Your Bank May Deny Your Mortgage Renewal In Canada
You can always touch base with the lender to learn the reason for the denial. But here are some common reasons you may be denied:
You’ve Missed Multiple Payments
Lenders will most commonly reject a mortgage renewal request if a homeowner has been missing their monthly payments. In fact, if you fail to make your mortgage payments, not only will you be denied a renewal, but you could be at risk of foreclosure.
Your Income Has Changed
If you lost your job and no longer have a steady income, you could also be denied the renewal. Even if you’ve been keeping up with your monthly payments if you’re showing signs of financial distress, your mortgage renewal could be denied.
You Can’t Pass The Stress Test
In Canada, borrowers need to pass a stress test when applying for a mortgage. The stress test determines whether or not a borrower can withstand an interest rate increase. If you fail the stress test, you’re lender may deny your mortgage renewal.
Your Debt-To-Income Ratio Is Too High
Debt is a large factor as well, namely your debt-to-income ratio. If this ratio is too high, then the lender may deem that you are not eligible. This is because they may feel that you do not have a large enough income to cover your mortgage payments and your other debt payments.
Your Credit Score Has Fallen
Before applying for a mortgage renewal, it’s best to check your credit score to see where you stand. The earlier you check the more time you’ll have to improve your credit before renewal. Your credit score can have a big impact on your renewal approval, so ensuring it’s in good shape can improve your odds.
To lower your odds of being denied, you can ask what the lender’s credit standards and debt-to-income ratio expectations are. That way, before you apply, you can check to see if you meet the criteria.
What You Can You Do If Your Bank Denies Your Mortgage Renewal?
If your mortgage renewal is denied, there are a few things you can do to handle the situation.
Use A Mortgage Broker
If your financial situation has worsened since you first took out your mortgage. You should consider working with a mortgage broker like Mortgage Maestro. Mortgage Maestro matches Canadian homeowners with customized mortgage solutions. This is one of the main benefits of working with a broker like Maestro. They find you a loan specifically for you.
Work With A Private Lender
If your credit score is extremely low and your financial situation is worse for wear, it might be time to consider one of the following three options to avoid your house being foreclosed.
Some homeowners choose private mortgage lenders because they have similar benefits to traditional lenders, but their qualification standards are more reasonable. The problem here is that private lenders are less regulated and their rates are often higher than banks and other traditional lending institutions.
Improve Your Odds
- Find a cosigner – Another approach is to reach out to friends or family members to get a cosigner. Provided that person has solid credit, you will improve your chances of getting approved, even after you’ve been previously denied.
- Improve your credit score – Working to build a healthier credit score may help with your approval odds. Keep in mind that your credit score is only one factor used during the renewal process.
- Increase your income – This isn’t always possible. But, if you can increase your income. You’ll prove that you can in fact afford your mortgage payments.
- Pay down debt – Having too much debt can make it difficult to keep up with mortgage payments. Paying down any consumer debt you might have, is a good way to increase your renewal chances.
Sell Your House
This is the last recourse and is usually only viable if everything else has failed. If necessary, selling your home to pay the amount owing on your mortgage is a viable solution. The profitability of this route depends, in large part, on how the market situation is at the time of selling.
Shopping Around For A New Lender?
It’s very important to know exactly when your mortgage will be up for renewal. Not just for obvious reasons, but also so that you can have the option to shop around for other lenders. Who knows, you might be able to qualify with a new lender who offers a more reasonable interest rate. Since there will likely be a vast number of banks, mortgage brokers, and other lenders in your province alone. You should start researching a few months in advance. You can contact them and ask for an assessment, then make your decision afterward based on what each lender offers you.
Think About Your Financial Situation
As soon as you become a homeowner, you’ll start to get an idea of just how much your home will cost you. Right now and in the future. Before choosing to renew your mortgage with your current lender, or switching to a new one. Make sure you consider all factors. Does your current mortgage rate suit your financial needs? Will the rates of your new lender suit your financial needs? What will you need to do if your mortgage is too costly and you need to sell your house?
Renew Your Mortgage Or Switch?
When the 30-day mark rolls around, you should start getting ready to make your decision. If you’re going to stick with your current lender you can set up an appointment with them. Discuss your contract, find out if you qualify for renewal, and resign your contract.
However, if you decide to switch lenders, it’s important to know about the extra costs associated with that process. First, you’ll need to submit a whole new application. Wherein your finances, credit, and background information will be checked and reviewed. If you’re approved, you’ll have to pay certain fees, such as the appraisal of the property and other closing costs.
Talk To Your Current Lender Before Making Any Decisions
Having your mortgage renewal denied is rare. But, if for whatever reason, you think it could happen to you. It’s important to speak with your lender right away. Also, don’t forget that you don’t need to stick with your original lender. There are many banks and alternative mortgage lenders who can offer customized options based on your needs.