The end of your mortgage term means you will be receiving a renewal letter in the mail soon. For most Canadians, this is the opportunity to continue partnership with their current lender or to switch creditors in search of better rates. There are times, though, when the decision is not based on which lender has the more enticing offer. Some homeowners are forced to change lenders when they are denied a mortgage renewal.
Borrowers who make mortgage payments unfailingly every month should have no trouble renewing their mortgage with their current lender. For the delinquent ones, however, the consequence is usually dire. There are a number of reasons why your mortgage renewal could get denied. If this happens to you, you need to know some practical alternatives that you can explore so you will not have to lose your home and investment.
In Canada, your mortgage term can last between six months to ten years. Debtors with high ratio mortgages, or those who made an initial down payment of less than 20% of the home’s asking price, will have a maximum amortization of 25 years. Meanwhile, the maximum amortization period for those who paid a down payment of 20% or more is 35 years. Most Canadians go for the 25-year amortization period with a fixed-rate mortgage term of 5 years.
During this term, a homeowner must make monthly mortgage payments, including interests. At the end of the five-year mark, they will have to renew their mortgage with their current lender. If you want to look for a better rate, you may refinance your mortgage and shop around for another provider. Changing lenders has its own drawbacks. It can be very expensive and taxing. Most homeowners tend to stick with the one they have been with from the beginning.
Can you be denied a mortgage renewal at the end of your term? Yes, your current lender may refuse to continue giving you credit for a number of reasons. When this happens, you will have no choice but to change lenders. Homeowners should know exactly what to do if denied a mortgage. Finding and signing with a new creditor will require time as you have to submit a new mortgage application and undergo the screening process.
As long as you have paid all the fees throughout your mortgage term, your current lender will have no reason to deny your request for a mortgage renewal. Staying with your current lender will save you the stress of re-qualifying for a new mortgage. Once you receive the renewal notice, make sure to sign it and send it back to your lender so you know your mortgage will be renewed. What happens if your mortgage loan is denied, though?
Whenever a mortgage term ends, it is a lender’s job to reassess the financial health of its debtor by reviewing their credit report and credit score. This will show if you have other debts to pay and if you are experiencing financially-related problems. Lenders will want to know how much of a bankruptcy risk you will be in the upcoming years. Borrowers experience having their mortgage renewal denied after this review period.
Your lender will assess your financial situation and see if you have obtained more debt that you cannot afford. If you have lost your job or your credit score dropped, this will concern your lender, enough that they can choose not to renew you. Even if you have been diligently making mortgage payments throughout the term, if you are exhibiting signs of financial distress, the chances of getting denied is high.
What happens if your mortgage loan is denied by your current lender? Your next step should be to shop around and hopefully find a new lender who will cater to your application. Remember that with a new lender, there is a bigger probability of getting your mortgage renewal denied. Since this will be a new application, you have to meet the new lender’s borrowing criteria and submit documents that will prove your creditworthiness.
Other than your outstanding mortgage, your new lender knows nothing about your finances so they will need verification of your income and other credit requirements. If your credit score is damaged or your employment history is unpredictable, it can hurt your mortgage application. The same applies if your new lender sees a pattern of missed payments from you. On this basis, can you be denied a mortgage renewal by your new lender? Yes, definitely.
Your new lender may reject your mortgage renewal request as early as the qualifying process. Once they see that you do not qualify with their standards, which may be tougher to meet, it can easily lead to rejection. Homeowners are usually uncertain on what to do if denied a mortgage a second time. This may seem like your predicament could not get any worse, but take heart. You may still try your luck with a private mortgage lender and hope for the best.
The mortgage renewal process in Canada is pretty straightforward. Several months before your first term ends, you will be receiving a letter from your lender. This is to notify you that your mortgage contract is up for renewal. The next step is setting an appointment to discuss your options with them. If you qualify and remain satisfied with their service, you may sign with them again for a new term. If not, you can choose to switch lenders.
It is important to keep tabs on when your mortgage term will be ending. This will give you enough time to shop around for other lenders and find more competitive interest rates. Consider your financial situation before deciding. Is the rate your new lender proposing more suitable to your financial needs than what your current lender offers? A month before you are up for renewal, you should have already made up your mind on the path you would like to take.
When you choose to switch lenders, be reminded about the extra costs you will be shouldering to kickstart the process. It will be like a whole new application for you. Once approved, you will have to pay certain fees, including an appraisal of the property and assignment of a new contract. You will also have to pay for the termination of your contract with your current lender and other legal costs. This is why it is important that you have money saved for the switching process.
There are several avenues that you can explore if your mortgage renewal gets denied. Always start by negotiating with your current lender to keep your mortgage active. If this is a lost cause, you may apply with a new lender. If the new lender also rejects your application, consider your other options. There is a chain or order that borrowers usually follow when looking for a different creditor.
Try to approach the B lenders first. These are trust companies and bad credit institutions that can help you even if your credit score is a bit low. B lenders typically charge higher interest rates compared to major banks and other A lenders, but this can be worth it if you save your property in the end. If B lenders cannot accommodate you, you may want to consider a private lender. Note that these creditors charge even higher rates than bad credit lenders.
Private lenders have less strict regulations for financing. You may be able to work out an agreement with them and get your application approved even if it did not work out with A and B lenders. For those struggling to get approved on their own, they can always find a cosigner. A cosigner with good credit can help bring down your rates and lessen the risks involved in lending money to you.
If all else fails, you may have to sell your home to pay off your mortgage. This may not be a pleasant option, but it is still better than getting bankrupt and having your property foreclosed. Even if you cannot get every penny your house is worth, you will at least be able to recover part of your investment. Downsize to a house that is more cost-effective and save enough money so you can apply for a mortgage again soon.
Before you start worrying whether your mortgage will be renewed or not, speak with your current lender first and avoid jumping to any conclusions. If your current mortgage rate is not working anymore, negotiate for a more reasonable rate that suits your financial needs. Discuss with your current lender about your plans of switching, if you have any. Do lots of research and consider all aspect if switching lenders will be better for your situation. With proper planning, you will be a step closer to paying off your mortgage in full.
What happens if your mortgage renewal is denied?
If your mortgage renewal gets denied, do not lose hope. You may switch lenders and apply for a new mortgage. In the event that your application gets rejected, you can try your luck with B lenders and eventually, with private lenders.
Do banks check credit for mortgage renewal?
Yes. Banks check if your credit score remains good and your financial situation is still stable. They will want to know if you have incurred more debts and whether you can continue paying your mortgage on top of those debts.
Can I renew my mortgage if I’m unemployed?
In most cases, if a borrower has been making regular payments in full and on time, they should not encounter trouble with renewing their mortgage, even if they are unemployed. However, your unemployment status may concern your lender about your capability to keep on paying your loan in the upcoming months and years.
Can a bank automatically renew your mortgage?
For a mortgage to be renewed, your lender needs you to sign papers expressly stating that you are staying with them for a new term. Both you and the lender will need to confer about the terms of the new contract before proceeding with the renewal process.
What happens when your mortgage is up for renewal?
Several months before your term ends, you will be receiving a letter from your lender informing you that your mortgage is up for renewal. Within this time, it is best to weigh your options and decide if you want to stay with your current lender or shop around for a new provider.
How soon can I renew my mortgage without penalty?
By law, mortgage renewal should be done 21 days before your term is up. However, most lenders allow borrowers to renew their mortgage anytime in the final 120 days of their current term, without having to pay a penalty.