A letter arrives in your mailbox about 4-6 months before your mortgage term ends. It’s time for your mortgage renewal, a process most Canadian homeowners will undergo several times throughout their mortgage. For many, it’s a simple matter of signing the renewal offer and moving forward. But what if your bank decides not to renew your mortgage?
The good news is that most Canadians with mainstream lenders will breeze through the renewal process. But, while rare in Canada, mortgage renewal denials do happen, causing significant stress and uncertainty for homeowners. If you’re with a B or C lender, have experienced financial challenges, or worry about qualifying under today’s stricter lending standards, you’ll want to know your options, including how SLG Homebuyer can provide solutions when traditional renewal paths close.
Do Banks Check Credit for Mortgage Renewal?
When your mortgage term approaches its end, you might wonder whether your lender will scrutinize your financial situation as thoroughly as they did during your initial application. The answer depends largely on your lender and your renewal circumstances.
Most major Canadian banks and A-lenders follow a streamlined renewal process for borrowers in good standing. If you’ve made all your payments on time and haven’t significantly increased your debt load, your bank may offer automatic mortgage renewal without a formal credit check. You’ll typically receive a renewal letter with mortgage renewal rates, and the process involves minimal paperwork.
However, lenders do reserve the right to check your credit, and many will at least perform a basic review. This becomes more likely if:
· You’ve missed payments during your existing term
· You’re attempting to negotiate better mortgage renewal rates
· You want to refinance or borrow additional funds
· You’re switching to a different lender
B and C lenders, such as trust companies and private mortgage providers, typically conduct more thorough checks at renewal time. At renewal, they’ll want to confirm your financial situation hasn’t deteriorated further.
Remember that mortgage renewal requirements have generally tightened since the introduction of the mortgage stress test. Even if your current lender doesn’t require qualification under the stress test for a simple renewal, you’ll need to pass this higher bar if you shop around for better rates elsewhere.
Does a Consumer Proposal Affect Mortgage Renewal?
Filing a consumer proposal can impact your mortgage renewal options, but the situation isn’t necessarily as dire as many homeowners fear. A consumer proposal—a legal arrangement to repay a portion of your unsecured debts, which will remain on your credit report for three years after completion and will lower your credit score.
Your current lender’s policies matter most. Many major Canadian banks have specific guidelines for handling mortgage renewals during or after a consumer proposal. If you’ve maintained a perfect payment history on your mortgage despite filing a proposal for other debts, your existing lender might renew your mortgage without significant complications.
The timing of your proposal relative to your renewal date is important. Your options narrow considerably if you’re actively in a consumer proposal when your mortgage term ends. Your current lender might:
· Offer renewal at their standard rates if your mortgage payments have remained current
· Renew at higher mortgage renewal rates to compensate for the increased risk
· Require additional documentation or impose stricter conditions
· In rare cases, decline renewal altogether
The situation improves somewhat for homeowners who have completed their consumer proposal before renewal time, though challenges remain. Successfully fulfilling your proposal obligations demonstrates financial responsibility, which works in your favour.
If your current lender is hesitant to renew your mortgage, alternative lenders—including credit unions, trust companies, and B-lenders may step in, though typically at higher mortgage renewal rates than those offered to borrowers with pristine credit histories.
While a consumer proposal affects your mortgage renewal options, it doesn’t automatically disqualify you. Many homeowners successfully navigate this situation with proper planning and perhaps acceptance of slightly higher interest rates during the recovery period for their credit.
What Happens if Your Mortgage Renewal is Denied?
Receiving a mortgage renewal denial can be alarming, but it’s not the end of your homeownership journey. While uncommon with major Canadian lenders, renewal denials do happen.
If your bank refuses to renew your mortgage, your first step should be understanding why. Common reasons include missed payments, significantly lowered credit scores, substantial income reduction, or increased debt levels.
The key to managing a mortgage renewal denial is acting quickly. Most lenders provide renewal notices 4-6 months before your term expires, giving you time to explore alternatives. However, if you suspect renewal might be problematic, start planning 12 months in advance. After a denial, you typically have several options:
1. Negotiate with Your Current Lender
Contact your lender directly to discuss possibilities. They might reconsider with modified terms, such as extending your amortization period to lower monthly payments or accepting a higher interest rate to offset their perceived risk.
2. Seek Another Traditional Lender
Approach different banks, credit unions, and trust companies that may have more flexible requirements. While you’ll need to re-qualify and undergo credit checks, these institutions sometimes accept borrowers rejected elsewhere, though potentially at higher mortgage renewal rates.
3. Consider Alternative Financing Options
B and C lenders specialize in helping borrowers with credit challenges. Their mortgage renewal rates are higher, but they provide breathing room while you rebuild your financial standing. Private lenders are another option, though with significantly higher interest rates and often shorter terms.
4. Explore a Cash Sale Solution
When traditional renewal options aren’t viable, selling your home might become necessary. Companies like SLG Homebuyer help homeowners facing mortgage renewal challenges. This solution eliminates the stress of financing denials and provides an immediate resolution to your mortgage situation.
If you’re approaching mortgage renewal and feeling uncertain about your approval prospects, or if you’ve already received disappointing news from your lender, SLG Homebuyer offers a solution. We help homeowners facing mortgage renewal difficulties by providing fair cash offers for their properties.
Every homeowner’s situation is unique. Whether you’re simply exploring your options or need immediate assistance with a mortgage that won’t be renewed, contact SLG Homebuyer for a no-obligation consultation.