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Mortgage Renewal Denied? These Are Your Next Steps…

Mortgage Renewal Denied? These Are Your Next Steps…

Couple denied for mortgage renewal

Couple denied for mortgage renewal

Your mortgage renewal is coming up and you knew that you would be paying a higher interest rate. But, what you weren’t expecting was that your bank would turn you down for your mortgage renewal. Unfortunately, this is more common than you might think, with higher interest rates and debt-to-income ratios making many homeowners ineligible for a new mortgage term.

According to an article by the CMHC, in 2024 and 2025, an estimated 2.2 million mortgages will be facing interest rate shock. If you don’t receive a renewal notice or your existing lender is asking for a much higher interest rate, it’s time to look around and see what your options are. Below, I’ve outlined a few key things you should know about mortgage renewals and some of the options open to you if you need to find an alternative to your existing lender.

Understanding Mortgage Renewals

In Canada, most mortgages have an amortization of 25 years and have a fixed interest rate mortgage term for the first five years. During these five years, homeowners pay a set amount each month, which includes both the principal and interest. Once the five years are up, homeowners have to renew their mortgage term. Each lender has their own rules for renewals, so whether you will be approved or not will depend on these requirements.

Usually, your lender will send out a mortgage renewal letter a few months before the end of your term listing the new interest rate and terms of the contract. At this point, you have three options.

You can stick with your current lender if you like the new terms and keep working with them. You can negotiate the terms and interest rate with your existing lender or, you can switch to a new lender.

Even though renewing your mortgage seems easy, it’s important to stay on top of your mortgage payments because a small mistake could mean your mortgage application gets turned down.

Why Your Mortgage Renewal May Get Denied

There are several reasons that your mortgage renewal might be denied, from credit score issues to changes in your finances. So, what do you do if your mortgage renewal is denied? Let’s look at some of the most common reasons:

  1. Poor Credit Score: If your credit score has taken a significant hit since your last renewal or mortgage application, your chances of being denied increases substantially.
  2. Missed Mortgage Payments: Even if your credit score is in good standing, missed or late mortgage payments can raise red flags for lenders, especially if you’ve missed multiple payments.
  3. Employment and Income Changes: If your employment or income status has changed since your last renewal, it can impact your ability to secure a new mortgage. Lenders prefer a stable and consistent source of income.
  4. High Debt-to-Income Ratio: If your ratio is too high, indicating that your debt levels are disproportionate to your income, your mortgage renewal application may be denied by your existing lender.
  5. Property Value Fluctuations: If the value of your property has decreased significantly since your last renewal, your lender may view it as insufficient collateral to secure the mortgage.
  6. Changes in Lending Guidelines: Lenders periodically update their guidelines due to changes in regulations or economic conditions, making it harder for some homeowners to qualify.

If you feel you’ve been denied for one of these reasons, don’t worry. There are strategies and solutions I can help you with to get a new mortgage approved for you.

How To Combat Mortgage Renewal Denial

It may seem scary to have your mortgage renewal denied but don’t worry, it’s not the end of the road. You can:

Work with a Mortgage Broker

The best way to handle this situation is to get help from an experienced mortgage broker who knows their stuff. Mortgage brokers work with many different lenders like banks, credit unions, and other alternative lenders. They can look at your situation and give you choices that fit your money situation when the banks won’t.

A mortgage broker will also explain why you got denied and help you make the improvements needed to better your financial situation. They’ll negotiate with lenders for you to find the best deal on interest rates, mortgage terms, and customizable mortgage options. Unlike the banks, a mortgage broker has access to non-traditional lenders, like private lenders, that might be easier for you to qualify through.

Improve Your Credit Score

If your mortgage renewal was denied because your credit score wasn’t good enough, you can take steps to make it better, which could help you get approved next time. First, get a copy of your credit report and check for any mistakes. If you find any, you can dispute them.

You’ll also want to try to pay off as much debt as you can, and keep your credit card balances low. It’s also important to always pay your bills on time, whether it’s for your utilities, credit cards, or loans. If you have a lot of high-interest debts, you might want to think about combining them into one payment to make it easier to manage.

Improving your credit score won’t happen overnight, but even small changes can make a big difference when you apply for your mortgage renewal. If you’re really stuck when it comes to your credit score you can look at getting a co-signer or guarantor.

Increase Your Income or Reduce Expenses

If you were turned down because you have too much debt compared to your income, there are things you can do to fix it. You could try making more money by getting a second job or starting a small business on the side. Or, you could cut down on spending money on things you don’t really need.

You might also think about consolidating your debts into one payment or talking to the people you owe money to and seeing if they’ll let you pay less each month over a longer period of time to spread out the repayment. That way, your debt compared to your income would look better, and you might have a better chance of getting approved next time.

Think About Selling Your Home

Sometimes, it might be a good idea to sell your home and move to a smaller, cheaper one. Even though it might not be what you want to do, it could help you feel less worried about money and give you a chance to start over. You can talk to a real estate agent to find out how much your home is worth and see what your choices are at that point.

If Your Mortgage Renewal Has Been Denied, Give Me A Call

Even though your bank, or current mortgage lender, has turned you down, you still have options. I can find the best solution for your financial situation and get you a favourable interest rate at the same time. Give me a call, at 705-315-0516, or book a consultation with me at this link and together we will look at all the mortgage options and interest rates available to you.

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