When you become a homeowner, you should not forget about your mortgage renewal, whether it happens in 6 months or 5 years. When it comes time to renew your mortgage, you should ask yourself the following question: Are there any reasons why my renewal might be refused? In fact, there are some reasons why your renewal might be denied, either by your current lender or a new lender if you decide to change lender. In the article below, we’ll talk a little bit about the mortgage renewal process, why yours might be denied, and what you can do if it is.
Seeking other lenders
It is very important to know exactly when your mortgage will be renewed, not only for obvious reasons, but also so that you can have the option to shop for other lenders. Who knows, you may be able to qualify with a new lender that offers a more reasonable interest rate. Since there are probably a large number of banks, mortgage brokers and other lenders in your province alone, you should start doing research a few months in advance. You can contact them and ask for an assessment and then make your decision based on what each lender offers you.
Think about your financial situation
Once you own the property, you will begin to realize how much your house will cost now and in the future. So, before choosing to renew your mortgage with your current lender, or changing lenders, be sure to consider all the factors. Is your current mortgage rate geared to your financial needs? Will your new lender’s rates be adapted to your financial needs? What will you have to do if your mortgage is too expensive and you have to sell your house?
Renew your mortgage or change lender?
When you arrive 30 days before the end of your mortgage, you should start preparing to make a decision. If you have done enough research to decide that your current lender is satisfactory, you can make an appointment and discuss your contract, find out if you qualify for the renewal and have to change your contract. However, if you decide to change lender, it is important to know the additional costs associated with this process. First, you will need to submit a brand new application, in which your finances, credit and background will be verified and reviewed. If you are approved, you will have to pay some fees, such as the property assessment, fees to terminate your contract with your current lender, assignment fees for your new contract, and several legal fees. So, if this is your choice, make sure you have saved enough for the switching process and all the other expenses that the future might hold for you.
Reasons Your Current Lender Could Deny Your Mortgage Renewal
In Canada, a typical mortgage lasts between 6 months and 10 years, during which time you will have a contract with a single mortgage lender, who will charge you a particular rate. If you have a high ratio mortgage, that is, you initially made a down payment of less than 20% of the asking price, you will have to purchase default mortgage insurance and have a payback period. maximum of 25 years. If your mortgage is low and you have made a down payment of 20% or more, you will not have to pay mortgage insurance and you will have a maximum amortization period of 35 years.
In fact, the most common mortgages in Canada have a 25-year amortization period and a 5-year fixed rate mortgage. During this term, an owner will make monthly mortgage payments, including interest, and after 5 years, will either have to renew his existing mortgage with his current lender or shop for another lender. Since changing the lender has its disadvantages, we will see in the next section that many homeowners decide to keep the lender with whom they are already doing business. If you are a homeowner and want to do the same, you should not have a problem renewing your contract if you have made all your mortgage payments on time and in full.
On the other hand, lenders will most likely reject a mortgage renewal application if a homeowner has missed their monthly payments. In fact, if you are unable to make your mortgage payments, you will not only be denied a renewal, but you may also be in default and be at risk of foreclosure. You should also be aware that when your mortgage is up, your lender will re-evaluate your financial health by reviewing your credit report and credit rating. This tells them if you have debts or other financial problems, and to what extent you may face a risk of default or bankruptcy in the near future. So, even if you have made all your monthly payments, if you are showing signs of financial distress, your mortgage renewal might be denied.
Reasons a New Lender Could Deny Your Mortgage Renewal
As mentioned above, some homeowners decide to change lenders if they offer a better mortgage rate. Some homeowners are also forced to change lenders simply because their current renewal has been denied. A lender could refuse a mortgage renewal during the qualification process. As mentioned above, every time you apply for a mortgage renewal with a lender, you will have to complete a new application, in which your finances will be reviewed, and the lender will then decide whether you qualify or not. If it appears that you will be able to qualify you will find it easier to get your renewal than someone who has had debt problems or a missing mortgage payment record.
In fact, if they qualify, many homeowners will simply renew with their current lender. Indeed, the standards of a new lender might be more difficult to meet. If this new lender reviews your file and finds that you missed a lot of mortgage payments in the past, it could easily lead to a refusal. The same could happen if the lender finds that you have accumulated a lot of debt, that you have often changed jobs, or that you have defaulted on your loans or other credit products. You must think about all these things before renewing your mortgage. If you have been denied by your current lender for one reason or another, you may have no choice but to find a private lender who will help people with bad credit or sell your home. If the rate of your current lender is the only reason you would like to change lender, it may be safer to keep this lender at the moment.
What can you do if your mortgage renewal is refused
Whatever the reasons, if your mortgage renewal is denied, know that you are not alone, and there are some actions you can do to handle this situation.
If your current lender refuses to renew your mortgage
The majority of mortgages are provided by companies also known as Class A lenders. These are traditional banks and financial institutions (Royal Bank of Canada, TD Canada Trust, Bank of Montreal, etc.) and other accredited mortgage lenders. . These two types of lenders will offer different rates. However, since these lenders have higher approval standards for mortgages and renewals, it can be difficult to qualify with them. So, if your current lender refuses to renew your mortgage, the first thing you should do is apply to a new lender.
If your current lender and a new lender refuse to renew your mortgage
If you have shopped for a new lender, but are unable to meet the demands of your current lender as well as potential new lenders, your financial situation is likely not up to their standards. If so, you can try to apply to Class B lenders, otherwise known as trust companies and lenders for bad credit. These companies process mortgages and other types of loans for borrowers who have bad credit, or who make less income than is required by typical banks or mortgage brokers.
The problem here is that even though their standards may be lower, the mortgage rates of B lenders are higher because of the amount of risk they take in lending to someone with financial difficulties and low credit. If your financial situation is worse than the qualification standards of lenders A and B, you may need to move to more drastic measures.
If lenders A and B refuse to renew your mortgage
If your credit rating is extremely low and voting financial status is even worse, it might be time to consider the following two options to avoid foreclosure of your home.
First, discuss your situation with a private lender. Some homeowners choose private mortgage lenders because they have similar benefits to traditional lenders, but their qualification standards are more reasonable. The problem here is that private lenders are less regulated and their rates are often higher than those of banks and other traditional credit institutions. In addition, crooks sometimes establish fake companies and then use the desperation of low credit borrowers to scam them. In the hope of renewing their mortgage for as long as possible, many of these borrowers will use all their personal and financial information, even going as far as buying a fake “mortgage loan insurance”. The information may be compromised, but everything they have is then open to theft.
If your mortgage renewal is denied by Class A and B lenders and you have not found a reputable private lender, you should sell your home and move to a smaller, more affordable home. This may not be the most pleasant or practical option, but it is certainly better to move than to suffer the consequences of bankruptcy or the seizure of your property. You may have trouble getting the price of the value of your home but at least you will be able to save some of your investment and save enough money to try your luck with another mortgage later and so to avoid bankruptcy.
Talk to your current lender before making any decisions
If you believe you may default on your mortgage and have your current lender refuse to renew your mortgage, talk to each other before making hasty decisions. Any good lender will negotiate with you at a reasonable rate that suits your financial needs. If you are thinking about changing lenders, do a lot of research and then discuss the change process with your current lender. If you want to change and your new lender approves your renewal, you could end up with a better monthly rate while getting closer to the full mortgage repayment.