Tens of thousands of Canadians file mortgage renewals every year. There are many reasons to renew your mortgage. Some of the popular reasons for mortgage renewal include:
- Your current mortgage has ended, and you want a new one.
- The interest rate for your current mortgage is very high, and you want to take advantage of a lower interest rate before it’s too late.
- You’ve experienced outstanding credit over the past year and now qualify for a much better interest rate than you had before
- You want to consolidate your current mortgage and credit card debt into one manageable monthly payment with a lower interest rate.
Suppose you fall under any of these categories. In that case, it is definitely in your best interest to renew your mortgage as soon as possible to take advantage of the benefits listed above.
However, if you ask, “What happens if my mortgage renewal gets declined?” then keep reading to find out the answer!
Why Your Mortgage Renewal Might Get Declined
There are lots of reasons why your renewal might get declined. When you receive a mortgage renewal letter in the mail, it will include an explanation about what could potentially cause your application to get declined. However, it’s also essential for you to know what can happen even if your bank doesn’t mention declining your renewal in the letter.
That way, you will know what to do if your application gets declined.
● You Might Be Missing Documents That the Bank Needs
One common reason your application may not get approved is that you didn’t file all of the necessary paperwork with your renewal. For example, every mortgage renewal letter should include a new disclosure statement for you to sign and return. If you don’t sign this new statement, your application will likely decline.
● You Might Not Meet the Bank’s New Lending Guidelines
When interest rates drop, many banks will begin to offer lower interest rates on their mortgages to compete with other loans and credit cards in the market. However, they usually only do this if you qualify under their new criteria for qualifying for a low-interest rate. If you fail to meet these new criteria, then it’s likely that your application will be declined.
● You Could Have a Credit Score That Is Too Low
During the mortgage renewal process, your bank will do a complete analysis of your finances. That includes checking why you haven’t made the required monthly payments on time. If you’ve been late with other forms of credit in the past, then this could negatively impact your ability to qualify for a new mortgage. That’s why it’s so important to stay up-to-date with all existing loans and credit cards during your entire time as a homeowner.
● Your Current Debt-To-Income Ratio Is Too High
The last reason you might not be approved for your next mortgage is what they call the “debt-to-income ratio.” When banks approve new mortgages, they don’t just look at how much you owe on your current mortgage. Instead, they also factor in how much of the monthly income of all members in the household is being used to pay for other forms of existing debt. If this number exceeds a certain percentage, then it’s likely that your application will get declined.
What to Do if Your Mortgage Renewal Gets Declined
While getting declined for a mortgage renewal is not necessarily a substantial financial burden, it can still be a problem if you weren’t expecting this to happen. Fortunately, there are several steps that you can take to renew your mortgage with the same or different bank successfully:
● Re-Apply at Another Canadian Bank
One of the best ways to turn around your current situation is by re-applying for a new mortgage and doing so as quickly as possible. When applying to other banks, you should make sure that this new application will use information from your most recent tax return instead of your old one. Also, ask a family member or a close friend to co-sign your application form, so you don’t risk being declined if something were to happen.
● Keep Making Monthly Payments on Time
Another great way to renew your mortgage after it has been declined is by proving yourself as a valuable customer before the bank decides whether or not to approve you for a new mortgage. If your monthly payments are up-to-date, your chances of getting approved will increase. That’s why it’s so important never to neglect your monthly payments.
● Collateralize Your Property Equity
Another option when getting your mortgage declined is to use collateral to get approved. While this will increase the amount that you’ll be able to borrow, the chances are that you’ll end up paying a lot more money if interest rates suddenly go up again before your next loan term begins. If possible, try to avoid taking out loans in this manner so you can prevent any added financial burden in the future.
● Find a Less Expensive Place to Live
If there is no other way for you to get approved for a new home loan, then your best option will be to start looking at places within your price range. That way, you’ll still be able to move into your place without worrying about doing renovations or paying too much in the long term. On the other hand, if you don’t mind living somewhere else temporarily, this might be the cheapest option of them all.
Make Sure to Know Your Options!
While getting declined for a mortgage renewal is never a good thing, you have to remember that it’s not the world’s end. As long as you’re willing to put in some extra effort and do whatever it takes to get approved, you will be able to successfully renew your mortgage at another bank or with the same one if they decide to approve you. Just make sure that you never neglect any bill payments, don’t rack up more debt than needed, and always try to keep your debts as low as possible.
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