What happens if your mortgage renewal is denied?

This piece was originally published on August 4, 2020 by Alyssa Furtado, and was updated on May 29, 2025 by Aditi Gupta.

Also read: Can you pay off your mortgage at renewal? Should you?

Why would a mortgage renewal be denied?

Let’s start by going over the two ways your mortgage renewal application can be denied, depending on whom you’re working with.

1. Renewal denied by your current lender

One good reason to stick with your current lender is that they usually don’t require a full requalification process, such as determining your debt service ratios. In most cases, as long as you’ve made all your payments on time, there’s no immediate reason your current lender would deny your mortgage renewal.

Many borrowers assume renewal is automatic, but banks can deny mortgage renewal in Canada, especially if your financial profile has changed since your last approval and the lender believes you can’t afford your mortgage renewal because of the following circumstances:

• Your credit score has dropped
• You’ve missed or made late payments
• You’ve taken on a large amount of new debt
• You’re currently unemployed, or your income has decreased

These situations are becoming more common in 2025, after years of rate hikes and rising living costs. Forty-nine per cent of mortgage holders say they’re worried they won’t be able to afford their payments at renewal, according to a recent survey from the Canada Mortgage and Housing Corporation (CMHC). This concern reflects that lenders may be seeing more financial red flags in borrowers’ profiles.

Also read: Renewing your mortgage in 2025? Here’s what to expect

2. Renewal denied by a new lender

Switching lenders at renewal time can be a smart way to get a lower rate or better terms, but it comes with a higher risk of denial. Unlike your current lender, a new lender treats it like a fresh mortgage application. That means you’ll need to submit documents and go through their full approval process, including:

• Income verification
• Credit score review
• Debt-to-income assessment

The good news is that, as of November 21, 2024, all mortgage borrowers switching to a new lender upon renewal will be exempt from the mortgage stress test, provided their mortgage size and amortization period remain unchanged and their mortgage originated at a federally-regulated financial institution. 

This rule removes a major hurdle, but lenders still apply their own credit and affordability checks. If your credit score has dropped, you’ve missed payments, or your income is unstable, you may be denied.

How to avoid being denied at mortgage renewal

Here’s how you can reduce the risk of renewal denials.

1. Keep your credit score in good shape

Most lenders and banks check your credit score for mortgage renewal to assess risk. If your score has dropped since you first got your mortgage, it could raise concerns. Aim to keep your score above 680, and check your credit report a few months before your renewal. Look out for errors or missed payments that could be bringing your score down and get them corrected. Also, make all your payments on time to improve your credit report. Set up automatic payments or reminders to stay on track.

2. Don’t take on new debt right before renewal

Taking on new debt, like a car loan or line of credit, can increase your debt-to-income ratio, which lenders use to decide whether you can afford your mortgage. If you’re approaching your renewal date, avoid new credit applications and keep your balances low.

3. Be mindful of income changes

If you’ve recently changed jobs, started a new business, or experienced a reduction in income, your lender may view you as higher risk. While your current lender might still approve your renewal, switching to a new one could be tougher. If possible, wait until your income stabilizes before applying elsewhere, or be ready to provide supporting documents.

4. Watch your debt service ratio like a lender would

One of the key things lenders look at when renewing your mortgage is your debt service ratios. These two numbers help lenders determine whether you can realistically afford your housing costs.

• Gross Debt Service (GDS) includes your mortgage payments, property taxes, and heating costs. Your GDS should ideally be 39% or less. 
• Total Debt Service (TDS) includes your GDS costs plus any other debts — like car loans, student loans, or credit cards. You should aim for TDS to be 44% or less.

Use an online calculator to test your ratios. If they are creeping higher, focus on paying down high-interest debts before your renewal date.

What to do if your lender denies your mortgage renewal?

If you shopped around for a better offer but were denied by a new lender, your first move should be to circle back to your current lender. They already have your payment history on record and might be more flexible than a new lender when it comes to approving your renewal. Ask if they can offer a more manageable rate or payment structure. For example, extending your amortization period can reduce monthly payments and improve affordability.

If your current lender denies your renewal, it’s time to explore alternative solutions. Let's watch some tips on renewal before exploring steps you can take to regain control of the mortgage renewal process.

• Work with a B lender: If your original mortgage was with an A lender (such as a bank or credit union), approach a B lender. These are typically trust companies or institutions that cater to borrowers with lower credit scores or higher debt levels. While B lenders often charge slightly higher interest rates, they’re more flexible with their lending criteria.
• Explore private lending: If a B lender denies your application, your next option is a private lender. Private lenders are more willing to take on high-risk borrowers but often charge much higher interest rates and fees. 
• Refinance with a co-signer: If your income or credit profile is a barrier, a trusted co-signer with a stronger financial profile may help you qualify with another lender.
• Consider bridge financing: If your home equity is strong but your financial situation temporarily disqualifies you for a traditional renewal, bridge loans or short-term private financing can help you stay afloat until you can secure a longer-term solution.
• Talk to a mortgage broker: If your bank won’t renew your mortgage, a broker can step in to review your full financial profile and connect you with alternative lenders that specialize in working with borrowers who have bad credit, inconsistent income, or higher debt loads.
• Ask for a short-term extension: If your renewal date is fast approaching and you need time to explore other options, ask your current lender if they’ll extend your mortgage on a short-term basis (e.g. 3–6 months). It buys you time to secure financing or sell your home without entering default.
• Sell your property if necessary: If no lender can offer a mortgage that suits your financial situation, selling your home may be the last resort. This can be a tough decision, especially if your renewal date is approaching quickly. If you don’t have enough time to complete a sale before your term expires, you might need to secure a short-term or open mortgage from a B lender or private lender to tide you over.

Also read: Can your mortgage lender force you to sell your home?

Note: If you're wondering what happens if you don't renew your mortgage, the consequences can be serious. Your lender could automatically renew your mortgage at a non-competitive rate, or worse, begin legal proceedings if no payment agreement is reached.

The bottom line

Facing a mortgage renewal denial can be overwhelming, but it’s not the end of the road. By staying proactive, maintaining good credit, and exploring all available options, you can secure a solution that works for your unique circumstances. Remember, while rare, a bank can deny mortgage renewal in Canada, so it’s essential to take the necessary steps to ensure a smooth renewal process.

Also read:

• What’s the difference between A-lenders and private mortgage lenders in Canada?
• More borrowers than ever are turning to private mortgages
• Should I pay down my mortgage with a lump sum, or invest?
• Can you afford a million-dollar home?
• How inflation affects your mortgage
• How to get a mortgage with bad credit
• The trigger rate: Everything you need to know
• How to stress test your mortgage