When your current mortgage term reaches its maturity date, you’ll need to renew the outstanding balance for another term. This is a process you’ll likely do a number of times until you pay off your mortgage in full.
Just before your term expires, your current lender will send you a renewal offer in the mail. The offer includes a new mortgage rate plus term, typically for the same length of your current term, as well as a slip that you can simply sign to accept and send back.
While the process is meant to be convenient (but can cost you in the long-term, which is why we suggest switching providers at renewal time), signing the slip doesn’t necessarily mean you’ll get approved. Here’s what you can do if your mortgage renewal is denied.
Let’s start by going over the two different scenarios you may find if your mortgage renewal is denied—and they both depend on who you are working with.
Is your bank turning you down?
Speak with a mortgage broker who specializes in loans for Canadians with low credit scores.
Why you may be denied by your current lender
If you decide to simply renew with your existing lender, you would think the process will be easy. The one good reason to stick with your current lender is that it doesn’t need to re-qualify you (for example, determine your debt service ratios). Typically, as long as you’ve made all your mortgage payments throughout your term, there’s no reason your current lender would deny your mortgage renewal application.
However, even though it doesn’t need to re-qualify you, your lender will still review your current financial situation (including your credit score) and see if you’ve racked up more debt than it believes you can afford to repay, or see if your employment situation has changed for the worse. If anything about your finances concerns your current lender, it can choose not to renew you.
Why you may be denied by a new lender
If your current lender denies your mortgage renewal or if you just want to shop around for a better offer than what they gave you, you can try to renew your mortgage with a new lender (you can contact a mortgage broker or mortgage agent to help you find a new lender). Unfortunately, your chances of being denied by a new lender are actually higher than if you stay with your current lender for one reason: You need to submit a brand new mortgage application with your renewal.
Because the new lender knows nothing about your financial situation, other than the outstanding balance of your mortgage (which it will only know after looking at the renewal slip provided by your current lender), it will need to verify your income and ensure you meet their specific credit requirements before it can approve your application.
If you’re worried about being denied by a new lender–maybe because you’ve missed mortgage payments before or have significantly damaged your credit score–your safest bet is to stay with your current lender since it doesn’t need to re-qualify you.
What to do if you’ve been denied
If you tried to shop around for a better offer and were denied by a new lender, the first thing you need to do is talk to your current lender and see if it will renew your mortgage. If both a potential new lender and your current lender deny your mortgage renewal, you’ll need to look at other options.
If your original mortgage was with an “A” lender—a bank or credit union—then you can talk to “B” lenders about your situation. “B” lenders are typically trust companies and bad credit institutional lenders that are able to work with individuals that have lower credit scores or more debt than someone an “A” lender would qualify.
However, if your credit score is extremely low, you might be denied by a “B” lender, in which case you have two final options: Talking to a private lender or selling your home.
While it’s rare for a mortgage renewal process to reach the point where you will need to sell your home, it can happen if your financial situation has drastically changed for the worse. This is why it’s so important to make your monthly mortgage payments and maintain your good credit score—by doing so, you should never have a problem getting at least your current lender to renew your mortgage for another term.
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