Tips to Help You Navigate Declined Mortgage Renewal Applications
All across Canada, homeowners are faced with a daunting reality each year—their mortgage renewal. For many, the not-so-simple process of qualifying for a renewal is stressful. But stress takes on a whole new form when your renewal application is declined.
So what’s next? While it is stressful having a mortgage renewal declined, it does not mean the end of homeownership. Many people face this obstacle due to life events such as job loss and illness, and there are ways around it.
Here’s a look at why a mortgage renewal can be denied, how to qualify for a mortgage renewal, and the next steps to take if your mortgage renewal is declined.
Reasons Why A Mortgage Renewal Is Declined by A Current Lender
While you don’t usually need to requalify for a mortgage if you stay with your current lender, there are some financial warning signs and reasons your mortgage renewal application could be rejected. These include:
Missed Monthly Payments
If you’ve missed monthly mortgage payments, your lender might reject your mortgage renewal application due to a perceived risk of you defaulting on your loan.
Poor Credit Score
When applying for a mortgage renewal, your lender may look at your financial history via your credit report. If you’ve missed payments on other loans and credit, taken on a lot of new debt, or have a consumer proposal or bankruptcy on your credit report, your credit score will be negatively affected. And a lower credit score can make you appear high risk to your lender.
If you have a large amount of debt, especially high balances close to the credit limits, there is a higher perceived risk of defaulting on your loans and filing for bankruptcy.
Change in Employment and Income
If your employment has changed frequently or your income is lower than before, you may not qualify for a mortgage renewal with your current lender.
Reasons Why A Mortgage Renewal Is Declined by A New Lender
You may have decided to switch lenders to get a better mortgage rate or because your current lender declined your mortgage renewal application.
When applying for a mortgage with a new lender, they will also look at the same financial information that a current lender would look at.
So, if you have missed payments on your mortgage or other loans, taken on a high amount of debt, or experienced a drop in your credit score or income, then a new lender may also decline your mortgage renewal application.
How to Qualify for A Mortgage Renewal
Here are tips to help you qualify for a mortgage renewal when the time comes:
- Make mortgage payments on time and in full.
- Maintain your employment and income status.
- Maintain a good credit score—check your credit score and report and make improvements to your credit wherever necessary—e.g. making payments on time, lowering debt, resolving any errors on your credit report.
- Work with a mortgage broker in the year leading up to your mortgage renewal to make sure you get ahead of any issues that might affect your renewal application.
The Stress Test, Explained
If you decide to switch lenders and apply for a mortgage renewal from a different lender with better rates and terms, you will have to pass the mortgage stress test. Otherwise, your mortgage renewal application will be denied.
The stress test ensures that borrowers can afford their monthly mortgage payments if mortgage interest rates rise. Lenders will look at your total debt service ratio—the amount of your income that is spent on monthly debt payments.
If a large portion of your income already goes toward paying debts, you may not be able to afford increased mortgage payments if interest rates rise, and you will be at risk of having your mortgage application denied.
Alternative and private lenders may also choose to use this stress test, but they are not obligated to.
What to Do If You’ve Been Denied
If your mortgage renewal application has been denied, keep in mind that you are not alone. It’s common for people to have trouble paying bills on time due to illness, job loss, divorce, and other stressful life events.
So, if you’ve been denied, get in touch with a mortgage broker. Mortgage brokers work with a variety of lenders and are more likely to find a lender who will renew your mortgage even if a traditional lender won’t.
A mortgage broker can also compare rates and mortgage products and negotiate with “B” lenders and private lenders to find the best mortgage for you and your financial situation.
Another alternative to mortgage renewal is to sell your home and downsize to a more cost-effective home with a smaller mortgage. While it is not always ideal to sell your home, it may help reduce your financial stress.
Speak with Brokers to Get the Assistance You Need to Renew Your Mortgage
In the year leading up to your mortgage renewal, speak with a mortgage broker to help you renew your mortgage successfully.
Mortgage brokers can help you apply for a mortgage with an alternative or private lender who doesn’t follow the strict rules that federally-regulated lenders follow when determining whether a borrower qualifies for a mortgage.
Life is unpredictable, and sometimes things happen that affect our financial health. If you’re concerned about a mortgage renewal application being declined, know that you’re not alone and that mortgage brokers are available to help.
When working with a mortgage broker, you will have help finding a lender who will renew your mortgage, so you can still be a homeowner and have one less thing to worry about in life.
Chris Allard’s experience in the field means he can get you offers with over 50 financial institutions lending in Ottawa. Every lender has many mortgage products they offer, which means Chris and his team will make sure a mortgage caters to your needs while also ensuring you get a competitive rate. Chris Allard is a proud mortgage broker of Smart Debt Mortgages, independently owned and operated. Smart Debt broker #12236.