Can a Bank Deny Your Mortgage Renewal in Canada?
When you renew your mortgage with your existing mortgage lender, there is typically no qualification process to spark any refusal to renew your mortgage. That said, missed mortgage payments may trigger an investigation into their willingness to renew. Further uncovering negative changes in your income or credit may indicate that you are at a higher risk of NOT paying your mortgage. It’s possible that these changes can result in your mortgage renewal being denied.
If your mortgage renewal is denied, it’s important to remember that you may have other options as a borrower. Understanding your options and the reasons why your mortgage renewal is being denied is essential to navigating this tricky situation.
Key Takeaways
Banks can technically deny your mortgage renewal in Canada under certain circumstances.
As a borrower, you may have options even if your bank denies your mortgage renewal.
To prevent a mortgage renewal denial, it is important to consult your mortgage broker the minute you start to experience financial hardship. Your mortgage broker can help you navigate the situation with the least risk to your mortgage renewal.
What is a Mortgage Renewal?
When you get a mortgage with a lender in Canada, your mortgage contract locks you into certain terms over a period of time. Your mortgage “term” can range from 6 months to 10 years. In Canada, most people opt for a 3 to 5-year mortgage term. An example of a mortgage “term” might be a 5-year, fixed-rate mortgage at 5%. The actual “mortgage” might be amortized or spread over 25 years, but the “term” is only for 5 years.
You have to renew your mortgage at the end of each term unless you pay the balance in full. Most Canadians require multiple terms to repay their mortgage in full. Typically, as long as you’ve paid your mortgage payments each month, as agreed, a renewal is as straightforward as a signature.
Reasons a Bank Might Deny a Mortgage Renewal
Missed Payments
If you've missed multiple mortgage payments, your lender might reject your mortgage renewal request. 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.
Poor Credit
Pulling credit is a common procedure at mortgage renewal. If you’ve experienced financial hardship that has resulted in excessive missed payments, consumer proposal or bankruptcy, there is a chance that your lender may be careful at mortgage renewal. That being said, if you’ve managed to pay your mortgage as agreed (despite financial hardship), then there is a strong likelihood your mortgage will be renewed at your current lender.
What Happens if Your Mortgage Renewal Is Denied?
It's important to note that each lender has its own criteria for approving mortgage renewals. Therefore, it's always a good idea to talk to your lender and broker about why your renewal request was denied and what you can do to improve your chances of approval.
As an aside, you should always be talking to your broker 120 days before your renewal to ensure you have many options at the time your mortgage renews. Renewing with your current lender means you’re a “price taker” but taking the deal to market means that you’re keeping your lender honest and seeking the best rates.
If renewing at a triple A lender isn’t an option for you, B lenders might be an option as they are often more flexible than A lenders like the big 5 banks. If B lending is also not an option, your final options may be a private lender or selling your home.
Legal Rights of Borrowers
As a borrower, you have legal rights when it comes to your mortgage renewal. The lender cannot simply deny your mortgage renewal without providing a valid reason. In Canada, the law protects borrowers from unfair practices by lenders.
When applying for a mortgage renewal, the lender must provide you with all the information you need to make an informed decision. This includes the terms and conditions of the renewal, the interest rate, and any applicable fees or penalties. If the lender fails to provide this information, they may be in violation of the law.
If your mortgage renewal is denied, you have the right to appeal the decision. You can contact the lender and ask for an explanation of why your renewal was denied. If you are not satisfied with their response, you can file a complaint with the Financial Consumer Agency of Canada (FCAC).
The FCAC is a government agency that regulates financial institutions in Canada. They have the ability to investigate complaints of unfair practices by lenders and take action to protect consumers. If the FCAC finds that the lender has violated the law, they can impose penalties and require the lender to make changes to their practices.
In addition to the FCAC, you can also seek legal advice if your mortgage renewal has been denied. A lawyer can help you understand your rights and options, and can represent you in court if necessary.
Steps to Prevent Mortgage Renewal Denial
When it comes to renewing your mortgage, there are a few things you can do to prevent being denied by your bank. Here are some steps you can take to ensure that your mortgage renewal goes smoothly:
1. Don’t miss your mortgage payments
Not missing your mortgage payments will keep things simple and likely avoid any further investigation into your overall financial situation.
2. Communicate with Your Lender
If you are having any financial difficulties, it's important to communicate with your lender as soon as possible. They may be able to work with you to find a solution such as adjusting your payment schedule or offering a temporary payment deferral.
3. Shop Around for Better Rates
Regardless of what your current mortgage lender is offering you, you should always be shopping with your mortgage broker when you’re within 120 days of your maturity. This will put you in the most secure position possible when your mortgage renews.
4. Be Prepared for higher payments
With interest rate fluctuations, your mortgage payment can change drastically upon renewal. This is because your payment is heavily based on your interest rate. Your mortgage broker may have some solutions to help shrink that payment upon renewal to ease the effects of rising interest rates.
Get Help From a Mortgage Broker!
Always get a second onion from your mortgage broker. A mortgage broker can help you find a new lender or a new product that may be substantially more helpful than a simple renewal with your current bank.
Mortgage brokers have access to a variety of lenders and products to help you find a more tailored solution.. They can also help you navigate the application process and provide guidance on the documentation you need to provide.
If you’ve been denied of a mortgage renewal or you’re worried you might not be approved when your mortgage renews, contact the mortgage experts at Spre Mortgage. We can help you evaluate your mortgage options and navigate the process.
