What Happens If Your Mortgage Renewal Is Denied?
It’s really anyone’s worst nightmare to see their mortgage denied at renewal. In Canada’s current economy, we get the question, “Can the lender decide NOT to renew the mortgage?”
Here’s the thing: If you haven’t been making your mortgage payments and you’ve proven yourself to be a very difficult client, yes, the lender can deny renewing your loan. They have to give you proper notice if they’re going to “call the loan” (deny the renewal), but you will have to quickly come up with the funds to pay out the mortgage or sell the property.
If your mortgage renewal is denied, but you have been paying the mortgage, you have several potential options to consider, including appealing the decision, seeking a new lender, or adjusting your finances to improve your current mortgage ability.
Key Takeaways
You have options if your mortgage renewal is denied.
Common denial reasons include poor credit and missed payments.
Consider new lenders or financial changes to improve your chances of getting approved.
Reasons for Mortgage Renewal Denial
When it comes to renewing your mortgage, several factors can lead to a denial.
Credit Issues: Your credit score plays a big role. Missed credit payments, consumer proposals or bankruptcy can impact your lender's decision to proceed with your relationship.
Missed Mortgage Payments: Consistently missing payments can lead to denial at renewal. Keeping up with your payments increases your chances of getting approved.
Fake News: Reasons clients worry about their mortgage not being renewed
Many of our clients worry that as their mortgage comes up for renewal, they will have to reapply for the loan. If you have been paying your mortgage payments as promised and your mortgage is with a major bank, credit union, monoline lender or even alternative lender, there is no reason they wouldn’t consider renewing with you. If your mortgage is with a private lender, they will also likely renew, depending on capital availability, but it can be slightly more difficult than with the previously mentioned lenders. Let’s bust some myths about why lenders may choose to to renew your mortgage:
Employment Changes: As long as you are paying your mortgage on time, the lender could care less about what you’re doing for work these days. Employment changes, retirement, and layoffs are a non-issue at renewal if you’re not planning on moving lenders.
Increased debt load: Increasing your debt load prior to mortgage renewal is also not a problem as long as you make all your payments on time. If you’ve acquired a student loan, purchased a new car or accumulated some credit card debt, no problem! Just keep paying those payments on time & the lenders don’t mind some changes to your credit profile.
Renovations currently underway: Renewing a mortgage only means that you’re signing on for another round with the current lender. The rate changes, but the amortization and mortgage amounts stay the same. The lender has no need to send an appraiser out to the property or check the property's condition, if you’re in the middle of a renovation - no sweat!
Immediate Steps After Denial
Negotiate with Your Current Lender
One of the first steps you can take is to talk to your current lender. They might be open to reconsidering their decision, especially if you can show improved financial stability. Prepare documentation highlighting any changes in your finances, such as an increase in income or a decrease in debt.
Request a meeting to discuss possible adjustments to the mortgage terms. You could negotiate a lower interest rate or extend the term to make payments more manageable. Demonstrating a clear plan to improve your financial situation can be persuasive.
Don’t hesitate to ask if they could offer any special programs or solutions during the negotiation process. Sometimes lenders make exceptions to keep a customer with a good track record.
Contact a Mortgage Broker
If your current lender is firm on their decision, it’s time to contact a mortgage broker. Mortgage Brokers can offer guidance and access to multiple lenders.
Brokers have access to multiple lenders with multiple products and can help find a match for your situation. They can present your case to different lenders, increasing your chances of finding one that meets your needs.
It’s important to compare offers from various lenders to ensure you are getting the best terms possible. Look at not only the interest rates but also the overall costs of the loan and any associated fees.
Consider a Co-Signer
If finding a new lender doesn’t work out, another possibility is to use a co-signer. A co-signer with a strong credit history can help offset any concerns a lender might have about your financial situation.
Discuss thoroughly with potential co-signers about their willingness and the responsibilities involved. It's crucial they understand the commitment. A co-signer would be liable for the loan if you cannot make the payments, so their financial situation could be negatively affected.
Impact on Your Finances
Effects on Credit Score
A denied mortgage renewal can negatively impact your credit score. When a lender turns down your request, it can indicate to other lenders that you might be a high-risk borrower.
This situation may lead to harder access to loans or credit in the future. Negative items on your credit report, like missed payments, could worsen this effect.
To protect your credit score, make regular payments and address any outstanding debts. Sometimes, speaking with a financial advisor or credit counselor can provide guidance to rebuild your credit.
Potential for Increased Interest Rates
Facing a mortgage renewal denial could push you toward alternative lenders or private lenders. These lenders often charge higher interest rates compared to traditional banks. The increased rates can significantly raise your monthly payments, making it harder for you to manage your budget.
Always compare rates from different lenders to see if you can find a better deal, even under challenging circumstances.
Risk of Home Loss
The denial of your mortgage renewal poses a real risk of losing your home. Not only is this a significant stress point, but it also destabilizes your living situation.
If you think you are at risk of not getting your mortgage renewed, reach out to a mortgage broker as soon as possible. If you have equity built up in your home, you may be able to use this to reduce debt through a refinance and help get you approved. To avoid losing your home, explore all alternatives, such as seeking help from housing counselors or financial advisors. Sometimes, renegotiating payment terms or finding credible co-signers can make a difference. Understanding all available options is vital to securing a stable future for you and your home.
Government and Legal Considerations
Understanding Your Rights
If your mortgage renewal is denied, you have the right to know why. Lenders must provide you with the reason for the denial. This includes whether it’s due to missed payments, a low credit score, or other financial factors.
You also have the right to challenge or appeal the decision. If you are not satisfied with their response, you can file a complaint with the Financial Consumer Agency of Canada (FCAC).
Additionally, you can contact a lawyer to review your case. Legal advice can be valuable, especially if you suspect that the denial is unfair or discriminatory.
Read our full blog for more information: Can Your Bank Deny Your Mortgage Renewal in Canada?
Government Support Programs
Federal and provincial governments in Canada offer programs to help homeowners facing mortgage challenges. The Canada Mortgage and Housing Corporation (CMHC) provides counselling and resources.
You might also benefit from programs aimed at improving financial literacy, helping you better understand and manage your mortgage obligations.
In certain cases, hardship programs may be available to assist with payments temporarily. These are designed to keep you in your home during tough financial times. Consult local authorities or financial advisors to learn about eligibility and application processes.
How to Increase Your Chances of Being Approved
A mortgage broker will help you increase your chances of being approved, whether it’s with your current lender or with a new lender.
Mortgage brokers can tell you the financial requirements each lender has, so you have a better understanding of how to get approved.
If your mortgage renewal has been denied, contact Spire Mortgage.
