Can My Mortgage Renewal be Denied?
While most Canadian mortgages amortize over a period of 25 years, they must be renewed or re-financed at the end of each term — typically every 5 years. When you take out a mortgage, your lender will specify the interest rates and terms that your loan will be subject to, however, these terms and rates are only valid for the duration of your mortgage term. After each term, you will need to decide between renewing your mortgage and terms with the same lender, or refinancing your mortgage by switching to another lender.
Even if you choose to renew your mortgage with the same lender, sometimes your mortgage renewal can be denied. The good news is, with enough preparation, and the help of a good broker, you can greatly increase your odds of success. In this guide, we will cover the most common reasons for denial, the best courses of action, and the potential impacts on your credit.
Reasons for Denial of Your Mortgage Renewal
Getting your mortgage renewal request denied can be a scary and confusing experiencing. Most homeowners in this situation find themselves wondering why their mortgage renewal was denied. Unfortunately, there is no clear formula for when a lender will or won’t deny your mortgage renewal, and they may not always provide you with transparency into their approval process. Despite this, there are a few key factors that can greatly increase or reduce your odds of approval—knowing them can help you increase your odds of success.
In 2023, the top reason for denied renewal applications was insufficient income. Most homeowners renewing their mortgages last year began their most recent term in 2018, when the BoC overnight rate was between 1.25-1.75%, and now had to re-qualify under a 5.00% rate. In addition to the rate hikes, many lenders had since tightened their income and debt requirements , leading to an uptick in renewal rejections. This trend has unfortunately carried over into 2024, and is likely to continue impacting mortgage renewals for the next few years — especially given the low interest rates taken on by many during the pandemic.
Another, more general, rejection criteria is missed payments. If you have missed any mortgage payments throughout your last term, your lender may see this as a significant breach of your financial commitment, and a sign of financial irresponsibility. Some lenders may not want to renew your loan at this point, as they may doubt your ability to handle future mortgage payments.
What to Do if You Have Been Denied a Mortgage Renewal
If you have been denied a mortgage renewal, the best course of option is to shop around for different lender options. Provide your income, credit score and debt repayment history, and request quotes for potential interest rates and terms. Then, compare your current offer with offers from other lenders. Just because your lender has denied your renewal does not mean that other lenders will deny your re-finance!
Working with a mortgage broker is a great way to optimize this process, and find out which lender is best for you. Your Clover Mortgage broker can help you examine the terms of your existing mortgage, including the interest rate, term length, monthly payment, and any specific conditions or penalties, and compare it against the offerings of over 60+ different lenders within the Clover Mortgage network. They can also reach out to your current lender to inquire about their renewal offer on your behalf, and potentially negotiate for more favourable terms and rates.
If all else fails, a final option for a denied mortgage renewal is selling your house and downsizing to a more affordable home with a lower mortgage. While selling your house is not always the best option or most desired option, in many cases it might help alleviate financial stress for you and your family.
Preparing for Renewal
While it may be impossible to fully predict the outcome of your renewal application, you can prepare yourself by reviewing your current mortgage agreement, and ensuring that you have met all required terms and conditions thus far.
The next step is to assess your financial situation. Check your credit score and take steps to improve it if necessary — a good credit score can help you secure better terms.
| Factor | Impact on Mortgage Renewal | Potential Solutions |
|---|---|---|
| Income Decrease | Lenders may deny renewal if your income has decreased significantly since your last term, as it could affect your ability to make payments. |
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| Job Change/Self-Employment | Lenders may be more cautious in approving renewals for self-employed individuals or those who have recently changed jobs, as income can be less stable. |
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| Increased Debt Levels | High debt levels, especially compared to your income, can make lenders view you as a higher risk for renewal. |
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| Property Value Decrease | If your property value has decreased significantly, you may have less home equity, making it harder to qualify for renewal. |
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| Life Events (e.g., divorce, illness) | Major life events that impact your financial situation can raise red flags for lenders during the renewal process. |
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This table highlights some additional factors that can impact your mortgage renewal, their potential effects, and strategies to mitigate those effects. Being aware of these factors and taking proactive steps can improve your chances of a smooth renewal.
While you cannot fully predict the outcome of a mortgage renewal application, you can certainly come prepared. To ensure a smooth and beneficial renewal process, start by reviewing your current mortgage agreement. Understand the terms, interest rate, and any specific conditions that may be unique to your loan.
Next, assess your financial situation. Check your credit score and take steps to improve it if necessary, as a good credit score can help you secure better terms. Make sure you can afford the next term mortgage payment by taking a look at your income and debt levels, especially if your interest rate has changed. It's best to start working with a broker and searching around for different lenders well before your current term expires. Compare interest rates, term lengths, and any extra expenses.
In order to solidify your application, and ensure you are checking all the appropriate boxes, you may want to check out our guide on getting approved for a mortgage . Before jumping into the renewal process, being aware of your financial situation and taking steps to fill gaps in your application (paying down existing debt, etc.) can help set you up for success.
Mortgage Renewal and Credit
While there are a number of factors that can impact your mortgage renewal process , including income, debt, and payment history, your credit score plays an especially large role in your potential approval. A decrease in your credit score can sometimes significantly hurt your chances of qualifying for a mortgage renewal.
Credit checks are typically performed before a mortgage renewal is approved; however, there are certain exceptions. If you are a borrower who consistently makes your payments on time, and is otherwise trustworthy, your lender may send you a renewal letter without even conducting a credit check. If you have missed a few payments in your last term, your lender is more likely to conduct a credit check, but that doesn’t mean you won’t ultimately be approved for renewal.
Best practice is to constantly keep an eye on your credit score to have at least a general idea of where you stand at all times. If your credit report is suboptimal, but you haven’t checked it until right before renewal, it will be very difficult to amend any issues, and you may face a higher interest rate or be denied renewal altogether.
Can you be denied a mortgage refinance?
At the end of your term, you have the option to either renew your mortgage or refinance it, but what’s the difference between the two?
A mortgage renewal typically involves extending your current mortgage agreement with your existing lender. You can sometimes negotiate new terms, such as the interest rate or term length, but only if your lender provides this as an option.
Mortgage refinancing , on the other hand, is when you replace your current mortgage with a new one from a different lender (or at times, the same lender). The main goal of refinancing is to secure better terms, which might include a lower interest rate, changing from a variable-rate mortgage to a fixed-rate mortgage, accessing equity through a cash-out refinance, or changing the length of your mortgage term. In order to refinance, you will need to re-apply for a mortgage, re-complete a credit check, and verify your income.
Unfortunately, you can be denied for a mortgage refinance, just as with a renewal or an initial mortgage application. Lenders assess your creditworthiness, financial situation, and the equity in your property when you apply for a refinancing, but they may not find you eligible for a loan with them. Common reasons refinance applications may be denied include a low credit score, insufficient income to cover the new mortgage terms, high levels of existing debt, or property appraisal values that do not support the requested refinancing amount. In 2022, approximately 25% of all refinance applications were rejected.
Regardless of whether you are looking to renew or refinance your mortgage, Clover Mortgage can help. Contact us today to get started with a free consultation, and begin planning for your financial future.
FAQ
What if I can't afford the increased monthly mortgage payments after renewal?
If your income hasn't increased but your mortgage payments have gone up significantly due to higher interest rates, you may struggle to make the payments. Speak to your lender about options like extending the amortization period or exploring a different mortgage product. As a last resort, you may need to consider downsizing to a more affordable home.
Can working with a mortgage broker improve my chances of getting approved for renewal?
Yes, mortgage brokers have access to multiple lenders and can shop around to find the best rates and terms for your situation. They can also negotiate with lenders on your behalf and provide guidance on improving your application.
How do missed mortgage payments affect my chances of renewal?
Missed payments are a red flag for lenders and can significantly hurt your chances of getting approved for renewal with your current lender. It's crucial to stay on top of your payments and communicate with your lender if you're facing financial difficulties.
What if my mortgage renewal is denied by multiple lenders?
If you've been denied by several lenders, it may be worth considering a private lender or alternative lending option, although these typically come with higher interest rates and stricter terms. As a last resort, you may need to sell your home and downsize to a more affordable property.
How can I improve my debt-to-income ratio for mortgage renewal?
Paying down existing debts, increasing your income through a job change or side hustle, or both can help improve your debt-to-income ratio. This shows lenders you have the capacity to take on a new mortgage term.
Can I renew my mortgage with a different lender if I have a poor credit score?
It will be more challenging to find a lender willing to renew your mortgage with a poor credit score, but not impossible. Be prepared to provide a strong explanation for any negative items on your credit report and consider using a mortgage broker to explore alternative lending options.
How far in advance should I start the mortgage renewal process with my lender?
It's generally recommended to start the renewal process 4-6 months before your current term expires. This gives you ample time to gather documentation, explore different lenders, and potentially improve your financial situation if needed.
