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When your current mortgage term reaches its maturity date, you will need to renew the balance for another term. Mortgage renewal is a process you will likely do several times until your mortgage is fully paid off.
Normally you receive a mortgage renewal offer in the mail from your current lender, asking for the new mortgage rate as well as a slip that you can sign and send back. This might seem very convenient and smooth, but it does not mean you will get approved.
When renewing your mortgage, one very important question you need to ask yourself is: will my lender renew my mortgage or denied? As there are several situations when a mortgage renewal can be denied. If this happens, you need to understand what are your options are and what can be best done to avoid any serious financial damage.
Thankfully, there are multiple things you can do when your mortgage gets denied. Read this guide to know what you can do in such a situation to better prepare yourself and make sagacious decisions.
But let’s first understand what mortgage renewals mean.
What is Mortgage Renewal?
Mortgage renewal is when your current term comes to an end and you sign a new term with your mortgage lender. It is an opportunity for you to renegotiate the terms of your mortgage contract, including the length, interest rate, and even the lender.
By law, your current lender is bound to send you a mortgage renewal statement at least 21 days before your current term is up. Usually, it is done via mail and with a renewal offer. Often, the lender will investigate your credit score to check whether you are still capable of renewal or not.
The process is straightforward and generally involves a template which states everything. If your finances are in good conditions and you have not defaulted on payments, then there is less chance of your mortgage denial. But, if your score is too low or you are behind the payments, then your renewal might face difficulty in getting renewed.
Can My Mortgage Renewal be Denied?
Situations and causes can be different, but one thing is for sure: your mortgage renewal can be denied. Below are some standard reasons on behalf of which a lender can reject your renewal application.
Denied by Current Lender
This is the most common among Canadians as lenders reject mortgage renewal requests if a homeowner has been missing the monthly payments. Not only this, if you are unable to pay your mortgage payment, you will not only be denied renewal but will also face the risk of getting into default. Also, if you have lost your job and do not have any steady income, your mortgage renewal can still be denied.
Denied by New Lender
If you are not satisfied with your current lender, you can always switch to the new lender if it is offering a better rate. However, there are situations when the potential new lender might deny your renewal request as well.
Your credit score and debt play a major role in assessing whether you will qualify for a low rating or not. If your debt to income ratio is too high, then the lender may consider that you are not eligible for the renewal.
Once you know what is mortgage renewal and how It can be denied, it is time to move to our most important part of the discussion that is what are your options.
Mortgage Renewal Denied: Now What?
If your mortgage renewal is denied, then take heart! You are not alone and there are still a lot of things you can do to handle this situation. Here are your options to pick.
Apply With a New Lender
The majority of mortgages, especially in Canada, are provided by companies and organizations that are often called ‘A’ lenders. These ‘A’ lenders often include banks and traditional financial institutions such as Royal Bank of Canada, TD Canada Trust, Bank of Montreal, etc.
All these lenders have very high standards of approval for both mortgages and renewals. So, it is hard to qualify for them especially if you are in debt or have a bad credit score. In such a scenario, you can always apply with a new lender and try your luck.
Apply With ‘B’ Lender
As mentioned earlier, ‘A’ lenders are often strict in their policies and might become difficult for anyone looking for approval with a poor credit score. So, what to do in this case? Go with ‘B’ lenders.
These are often known as trust companies and bad credit institutional lenders who deal in mortgages and other kinds of loans for borrowers with poor credit. You can also get approval here even if your income is low than the standard income required by the bank.
However, there is one drawback in going with ‘B’ lenders as well. Since they take the risk by lending to someone with poor credit, they charge higher mortgage rates.
Take Drastic Measures to Improve Your Credit Score
If you are denied by both ‘A’ and ‘B’ lenders, then it is time to take some drastic measures. Here are three options you can consider to cope with this situation.
- Work with a private lender
Private lenders have low qualification standards; hence, they become a more viable option for the low credit score homeowners. However, the drawback is that private lenders are often less regulated and their rates are often higher than banks and other traditional mortgage brokers.
- Find a Cosigner
A cosigner is someone who agrees to back up the borrower when the borrower is unable to pay the loan and ends up defaulting on the loan. If the cosigner has solid credit, you will get approved even after being denied earlier.
- Considering Selling Your House
If everything else has failed, selling a house might be your savior. The profitability of this route depends, in large part, on how the market is behaving at the selling time.
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The Bottom Line
It is a rare case of mortgage renewal that you reach a point where you have to sell your house. But, it can happen if your financial situation is deteriorating at a nosedive. Remember that as long as you are making your mortgage payments each month, there is no chance of getting into trouble renewing your mortgage with any other lender.
If you believe you might end up defaulting on your mortgage payments and your renewal might be rejected, then it is a good time to speak to your lender. If you are sure switching will be a good option for you and you will get a better monthly rate, then act now before it’s too late.