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That said, renewing your mortgage in Canada is a lot different than qualifying for a mortgage for the first time. The rules are a lot more lenient and depend on whether you choose to work with the same lender or a different lender. With most lenders, though, it’s in their best interest to find a way for you to renew the mortgage.
Mortgage Renewal Denials
While getting a mortgage is a process for Canadian homeowners, the process doesn’t stop there. At the end of every term, you have to renew your current mortgage, and unfortunately, there’s no guarantee that your mortgage renewal will be approved. At every renewal, the financial institution will go over your history to determine if you’re eligible to keep your existing mortgage. These are the factors that they look at.
Payment History
One of the first things that a bank will look at when determining if you’re eligible for a mortgage renewal is your payment history. If you’ve missed mortgage payments or have an outstanding balance on any of your mortgage payments, then you’re less likely to get approved. However, it’s not just missed payments on monthly mortgage payments that matter; it’s also missed debt payments on other forms of debt that matter. This includes monthly payments on loans, credit cards and other forms of debt.
Income
Over time, your life changes, and it’s likely many factors will be different after you purchase your home. For this reason, lenders will check to see if you have the same employment and monthly income. If your income is too low or you are unemployed, this could impact your approval.
Credit
While only some lenders will rerun a credit check when doing a mortgage renewal, it is still important to maintain a good credit score. However, lenders usually only check if they have concerns about your ability to pay the mortgage. If your score is below what the lender sets for the approval, then you won’t get renewed.
Debt
When it comes to debt, lenders use a debt-to-income ratio to determine whether or not you can afford the mortgage payments. If your debt-to-income ratio is too high, you are more likely to have your mortgage renewal denied. This usually only happens if you incur more debt, not if you have the same amount of debt as when you purchased.
Not Renewing Your Mortgage
If your mortgage application for a mortgage renewal is denied and you are unable to find a lender, or you choose not to renew your mortgage, one of two things will happen. The first thing that will happen is that your lender may choose to give you an open mortgage automatically. This means that your interest rate will likely increase, and you won’t get an option in your renewal amount.
On the other hand, though, if you’re unable to get a renewal at all, then the total amount of your mortgage is due immediately. Due to this, you’ll likely have to sell your home. If you do have to sell your home, once it’s on the market, you can usually arrange with your lender.
How to Qualify For A Mortgage Renewal
How you qualify for the mortgage renewal process depends on who you’re renewing your mortgage with. If you’re choosing to renew with the same lender and you have a good relationship with them, then it’s usually as simple as agreeing to the mortgage terms and signing a new mortgage contract. However, if you’re shopping around for a new lender, it’s going to be important that you meet all of the financial institution's requirements, including the mortgage stress test.
In order to get approved for a mortgage renewal, lenders want to make sure that you can afford all of the payments. They’ll also want to confirm that you meet the credit requirements and if your debt payments make up too much debt. Plus, if you have a CMHC-insured mortgage, you’ll need a minimum credit score of 680 in order to get approved.
How A Declined Mortgage Affects Your Credit Score
Getting a denied mortgage renewal doesn’t affect your credit score. However, applying for a mortgage and renewing your mortgage will reduce your credit score by 5 to 15 points. If you apply for many in a short period of time, you may only have your score reduced once, but all of the credit checks will be listed on your detailed credit report.
Employment and Mortgage Renewals
While your income may directly impact whether or not you get approved for your mortgage renewal, your employment actually makes a difference as well. If you’re unemployed, even if you still receive a steady income, this can be a red flag for lenders. However, they’re going to look at your employment history as well.
If you have a history of jumping from job to job, especially in different industries, this can also impact your mortgage renewal. Lenders tend to look for consistency in employment, such as long-term job history.
If you just got a new job, you don’t necessarily have to be concerned. If your job history shows long-term employment, then your new job won’t make too much of a difference at all, especially if you can show a pay increase, which is a common reason for getting a new job. However, multiple new jobs can cause the banks to ask some questions.
What To Do If Your Mortgage Renewal is Denied by Province
No matter where you live in Canada, if your mortgage renewal is denied, you do still have some options. There’s a process you can go through before resorting to the last option, which is selling your home to pay the remaining balance on your mortgage.
If you’re not approved for a mortgage renewal, the first thing you want to do is talk to the lender and figure out why you were denied. It might be something small that you can fix before your renewal is even due. If you weren’t approved due to the fact your income is lower or there’s a huge increase in mortgage interest rates, you could extend your amortization period. This will reduce your payments and increase your chances of approval.
In Canada, you can start the process of renewing your mortgage 4 months before your term is up. This gives you time to address any issues. If your credit score is the issue, you can use this time to tackle any credit issues, making it more likely for you to get approval. However, you don’t just have to stick with your original lender. You can also choose to get a cosigner if you need one.
Unlike other forms of debt, it’s difficult to manage mortgage debt when you're in a tough financial situation with typical avenues like consumer proposals and bankruptcy. This is why a cosigner or selling the home is your best option in a pinch.
Using Other Lenders
Once you’ve exhausted all of your options with your existing lender to re-qualify for your mortgage, another option to avoid selling your home is to go with a different lender. These alternative lenders may be able to approve you for future mortgage payments, even with a poor credit score, where a traditional lender couldn’t. You could also speak to a mortgage broker, who also has access to alternative lenders and can get you the best price on your renewal.
Types of Alternative Lenders
In Canada, if you’re unable to get a mortgage or mortgage renewal application approved with a traditional financial institution, there are actually plenty of alternative options available to you. Let’s take a look.
Smaller Banks
While getting a mortgage with smaller banks can be problematic to some because they haven’t been around as long as the larger banks, it can be simpler to get a mortgage with them. These banks also offer lower interest rates than some of the larger banks. It could be a good option if you’re looking for fast approval. Plus, you can always renew with a larger bank when your next term is up.
Credit Unions
Credit unions are a popular alternative to the larger banks for mortgages. Because they are smaller than traditional banks, they often have lower interest rates and require lower credit scores for approval. Credit unions also provide more one-on-one service than traditional financial institutions. Unlike traditional financial institutions, credit unions also offer products that banks do.
Trust Companies
Trust companies are a type of B lender in Canada. This gives them the ability to offer mortgages to clients that federally regulated banks can’t due to financial stress. However, this does mean that the interest rates from trust companies are higher than traditional institutions can give out, which usually results in a high ratio mortgage. They also have higher down payment requirements, but this shouldn't be necessary for a mortgage renewal.
Private Lenders
Another option when it comes to B lenders in Canada is private lenders. While these lenders are a good option for those having trouble getting a traditional mortgage, it’s important to do your research. Most private lenders have higher interest rates than other traditional lenders and charge administration fees. Their standard fees are 2% or higher, which is charged on top of the mortgage interest rate.
Mortgage Investment Companies
Mortgage Investment companies are also b lenders. They pool money from different investors to give to borrowers. It’s similar to peer-to-peer lending, but it is for mortgages. Just like other b lenders, the mortgage rates are higher, and terms are also often smaller.
Speaking To A Mortgage Broker
If you’re in a position where you have to switch lenders in order to get a mortgage renewal and you have no idea where to start, then it might be a good idea to speak to a mortgage broker. Essentially, mortgage brokers are licensed to speak with many lenders on your behalf. They also have access to non-traditional lenders. These lenders can help no matter what the housing costs.
Mortgage brokers in Canada not only have the power to find a mortgage on your behalf, but they can negotiate on your behalf as well. This allows them to get you the best rate and help save you money in the long term. It can also help you get financing when other traditional institutions don’t approve you.
Final Thoughts
If you aren’t approved for your mortgage renewal request right away, don’t worry; there are other options out there. Just because your current lender was unable to help you doesn’t mean that you still don’t have options.
While we are used to dealing with traditional lenders when it comes to mortgages, there are quite a few alternative mortgage lenders out there. These lenders are more lenient when it comes to who they can give a mortgage to and how much they can finance. That said, these lenders can be hard to find, so speaking to a mortgage broker can help you find alternative lenders and any other options that you may qualify for.
In the event that you can’t find a mortgage renewal at all, then the total amount of your mortgage is due in full, this is referred to as mortgage repayment. This means you need to come up with the funds or sell your home. This is why it’s important to start looking for a mortgage renewal 4 months before your mortgage renewal date. It gives you enough time before your renewal time to do your research and exhaust all of your options in the event of a denial.
