Can My Mortgage Renewal Be Denied?

Can My Mortgage Renewal Be Denied?

Written by Bryan Daly
Fact-checked by Caitlin Wood
Last Updated September 11, 2020

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.  

the cost of buying a house in Canada

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.

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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.

  1. 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.
  2. 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.
  3. 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.   

Mortgage Renewal FAQs

When do you have to renew your mortgage? 

The terms of your mortgage are established in the original agreement. When you sign a mortgage, there is often a fixed period. After this time, your mortgage becomes eligible for renewal. Sometimes, this can lead to opportunities to discharge the mortgage sooner. Other times it can drastically reduce your interest rates. If, when you signed the arrangement initially, rates were very low, chances are you tried to get as long of a term as possible. Conversely, if the rates were high, you likely opted for a shorter term to get a new agreement sooner. If you are unsure, contact your lending institution or consult your mortgage paperwork. 

Can I change my mortgage provider before my renewal date? 

Bear in mind that the “term” mentioned earlier refers to a period over which you are locked into an arrangement. Once you have signed onto a new agreement, it is important to understand that the terms cannot be changed until the next renewal period, unless you want to break your mortgage contract. Ensure that you are in a financially solid position and will remain so until (at least) the end of the period. 

Are you happy with your current mortgage lender? 

Assess how comfortable you are with the creditor currently in charge of your mortgage. Consider all aspects of the arrangement. Is the lender forgiving if you’ve ever missed a payment? Are there perks to dealing with this mortgage holder? Perhaps the customer service is high-quality and you prioritize this value significantly. Conversely, if you find that you are dissatisfied with the company currently managing your loan, it may be worthwhile to investigate alternative lenders.
 

Is the cost of switching to a new lender worth the change in interest rates?

Figure out if there are any penalties associated with leaving your current lender. While uncommon, it is always best to be prudent and inquire. Interest rates may be lower with the new lender, though the long-term cost may actually be higher. Assess your household’s priorities and decide what path is best before making the leap. 

Is there anything barring you from a renewal?

Be honest with yourself and assess whether there is anything that would reasonably bar you from being approved. Perhaps you lost your job and found new, lower-paying employment. If this is paired with rising debt from things like credit cards, your income ratio may have lowered. Figure out what you can reasonably expect and take steps to mitigate any issues beforehand. 

Can a mortgage broker help me renew my mortgage if I was denied a renewal? 

Mortgage brokers are often able to facilitate you finding a new lender should your existing institution deny the renewal. As professionals who are well-acquainted with lenders and rates, they can assist you in understanding your current financial situation and its ramifications. From there, you can learn what options are reasonably available. 

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.


Rating of 4/5 based on 24 votes.

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and traveling the world in search of the coolest sights our planet has to offer. Bryan uses the BMO Cash Back Mastercard to earn cash back on everything from boring bill payments to exciting excursions. He is also a strong saver, holding both a TFSA and an RRSP account in order to prepare for his future while taking full advantage of tax benefits.

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