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When you become a homeowner, your mortgage renewal should always be in the back of your mind, whether it’s 6 months or 5 years away. And, when the time comes to renewing your mortgage, one very important thing you need to ask yourself is: are there any reasons why mine might be denied?
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. By keeping yourself informed about what you can do next, you can prepare and make the wisest decision possible.
Thinking about borrowing using your home equity? Read this first.
What Does it Mean to Renew Your Mortgage?
To renew your mortgage refers to the closing out of individual terms. Since your amortization period, the total time it takes to buy off your mortgage in full is decades-long, your lending arrangement is broken up into different periods (terms).
- What’s Involved: At the close of each term, you get sent a renewal statement from the institution which holds your mortgage. Often, the lender will also investigate your credit to determine whether you are still fiscally solid. The process is straightforward and follows a template according to the lending institution’s policies. If you are further along in your mortgage, chances are you’ve already experienced a renewal. Unless there has been a major change (like a buyout) of the lending institution, it should be no different.
- How It Works: Provided your finances are in good condition and you haven’t defaulted on payments, there is little else to do beyond issuing a signature for the re-upped agreement. You don’t need to take action to run the credit check, since you consent to this in the mortgage arrangement. In some situations, however, if your score is too low or you’ve defaulted on the agreement, you may be rejected for renewal. This does require action on your part.
Shopping Around For a New Lender
It’s very important to know exactly when your mortgage will be up for renewal, not just for the 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.
Want to know why different lenders offer different mortgage rates? Find out here.
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. So, before choosing to renew your mortgage with your current lender, or switching to a new one, make sure you’re considering 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’ve done enough research to decide that your current lender is satisfactory, 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, a fee to terminate your contract with your current lender, an assignment fee for your new contract, and a slew of legal costs. So, if this is your choice, just make sure you have enough saved up for both the switching process and whatever other expenses the future might have in store for you.
Can My Mortgage Renewal Be Denied?
Causes for denial differ based on the lender themselves. Policies for default forgiveness and credit thresholds vary according to the lender. Of course, there are some standard reasons a lender may reject your application for renewal
Being Denied by Your Current Lender
The most common mortgages in Canada have an amortization period of 25 years, and a fixed-rate mortgage term of 5 years. During that term, a homeowner will make monthly mortgage payments, interest included, and at the 5-year mark, 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.
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 go into default and be at risk of foreclosure. You should also be aware that whenever your mortgage term is up, your lender will reassess your financial health by reviewing your credit report and credit score. Doing this tells them if you’ve been having debt or other financially related problems, and how much of a default or bankruptcy risk you’ll be in the near future. Additionally, 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.
Being Denied by a New Lender
As we mentioned earlier, some homeowners choose to switch to a new lender if they offer a better mortgage rate. Then again, some are forced to switch when their current lender denies their renewal altogether. If you happen to be switching lenders, it’s very important to know that there are situations where that potential new lender might deny your renewal request.
When you become eligible for refinancing, it is normal to take a look at the different options available. Since credit scores play a major role in assessing whether you qualify, a low rating can have a negative impact. 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. You can always touch base with the lender to learn the reason for denial. Additionally, beforehand, you can ask what their credit standards and debt-to-income ratio expectations are. Before you apply, you can check to see if you meet the criteria.
What You Can Do If You’re Denied For a Mortgage Renewal
Whatever the reasons might be, if your mortgage renewal does get denied, know that you aren’t alone, and there are a few things you can do to handle this situation.
If your current lender denies your mortgage renewal
The majority of mortgages are provided by companies and organizations sometimes known as “A” lenders, such as banks and traditional financial institutions (Royal Bank of Canada, TD Canada Trust, Bank of Montreal, etc.), and other accredited mortgage lenders. Both these kinds of lenders will offer different rates. However, because these lenders have higher standards of approval for both mortgages and renewals, it can be hard to qualify with them. So, if your mortgage renewal gets denied by your current lender, the first thing you can do is apply with a new lender.
If both your current and new lenders deny your mortgage renewal
If you’ve been shopping around, but are still unable to meet the requirements of both your current lender and would-be new lenders, it’s probably because your financial situation is not up to their standards. If this is the case, you can try applying with “B” lenders, otherwise known as trust companies and bad credit institutional lenders. These organizations deal in mortgages and other kinds of loans for borrowers who have poor credit, or who make less income than is required by a bank or typical mortgage broker.
The problem here is that while their standards might be lower, the mortgage rates of B-lenders are higher because of the amount of risk they’re taking by lending to someone with financial difficulties and poor credit. If your financial situation happens to be worse than both the A and B lenders’ qualification standards, you may need to move on to more drastic measures.
Click here for more information on missed mortgage payments and foreclosures.
If both A and B lenders deny your mortgage renewal
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.
- Work with a private lender. 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.
- 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.
Need to sell your home to become debt free? Read this.
When do you have to renew your mortgage?
Can I change my mortgage provider before my renewal date?
Are you happy with your current mortgage lender?
Is the cost of switching to a new lender worth the change in interest rates?
Is there anything barring you from a renewal?
Can a mortgage broker help me renew my mortgage if I was denied a renewal?
Talk to Your Current Lender Before Making Any Decisions
If you think you might be at risk of defaulting on your mortgage payments and getting your renewal rejected by your current lender, it’s a good idea to speak to them first, before jumping to any conclusions. If you feel like switching is a viable option, and your new lender approves your renewal, you could find yourself with a better monthly rate and be one step closer to paying off your mortgage in full.
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