Renewing your mortgage is a crucial process that many homeowners go through as a part of their financial planning. However, it’s important to be aware that renewal process comes with many uncertainties. It is possible that your mortgage renewal could be denied, leaving you with concerns and limitless questions in your mind about the future of your home ownership.
At the end of every mortgage term, homeowner seek for renewal option hoping with better rates and surety of quick approval. However, there are certain criteria’s that if homeowner doesn’t match then it’s likely a chance of denial on mortgage refinancing. There are many reasons where mortgage renewals get declined. If this happens in your case, it’s important to get aware of the possible options that are open for you. Good news is there are several things that you can do, before and after rejection instead of panicking with thoughts of losing your ownership.
While all mortgage lenders follow the same minimum criteria when approving mortgages, there some own set rules that each lender will define while approving mortgages considering all the risk factors that determines whether you eligible or not for extended mortgages.
Let’s explore the factors that could lead your lender to deny your mortgage renewal. Along with practical tips that provide guidance on what to do if you see yourself into this situation.
5 Common Factors that Lead Your Lender to Not Renew Your Mortgage
Bad Credit Score
Credit score plays vital role in making decision for lender to approve or disapprove your mortgage renewal. A bad credit score signals the history of missed payment, high debt, or financial mismanagement, making you a high-risk borrower in the eyes of lenders. Having a bad credit score showing up in the record is a red flag for bank lenders to approves your mortgage renewal. This is among the tops reason in most of the declined cases.
Lenders value stable income and re-verify your income at the time of renewal. Frequent changes in employment or especially during a recession when hiring freezes or individual losses job, this could raise concerns. Substantial changes in your financial situation like, decrease in income or switching employment recently can potentially lead to a denied on your mortgage renewal.
Loan-to-Value ratio (LTV)
If you have larger mortgage relative to your property value, it can be obstacle at the time of renewal. Mortgage lenders can use LTV ratio to check how capable you are for taking new mortgage. This ratio can be calculated by putting your income, mortgage payments, total debt and property cost and must fall under their debt serving limit to approves your mortgage renewal. Significant increase in LTV ratio impacts the lender’s decision on your mortgage renewal process.
Missed or late payments
If you have good payment history, then lender will recognize it as positive behavior and approves your mortgage renewal seamlessly. However, record of missed or late payment can jeopardize the renewal process. Lender may view this behavior as a sign of financial instability.
Many external factors such as unfavorable real estate market or decrease in property value can make lenders to think twice before approving your mortgage renewal. It may lead leaders to be more selective in making decisions.
Facing a mortgage renewal denial is undoubtedly a challenging experience. You are limited with options in finding new mortgage. Let’s explore what to do when your mortgage renewal declined by lenders.
Tips on What to Do If Your Mortgage Renewal Is Denied
Consult with Mortgage Broker
Identify the specific reason behind the renewal denial from lender and consult your mortgage brokers who have extensive knowledge on financial landscape. Broker can provide you insights on a best solution for your specific situation. Mortgage brokers work with variety of lenders and find you best option to renew your mortgage even if you have been refused by traditional lenders.
Your mortgage broker closely examines mortgage options and negotiate with other lenders including alternative “b lenders” or private lenders to get your mortgage renewal approved.
Consider Alternate Lenders
Alternate mortgages are best known for their relatively flexible eligibility criteria and may cover a larger percentage of the total home value. Basically, alternative lender refers to any practice that happens outside of traditional lenders institution.
If you have been denied by big banks (A lenders), you may seek for alternate mortgage lenders (B Lenders) such as credit unions, mortgage investment companies, specialized banks who are willing provide you mortgage despite of bad credit score or less strict conditions. Sometime this alternate lender may require you to pass a stress test considering it as new mortgage, but not always a case.
Talk to Private Lenders
Essentially, a private mortgage lending is a practice not associated or affiliated with a traditional financial institution. Generally, private lenders are not constrained by strict policies as traditional lenders and have better flexible requirements. They often accept your mortgage renewal that other financial institutions rejected due to poor credit.
If you have been denied by lenders A and B, then you may consider private lenders. Whether you have poor credit score, bankruptcy or any other reasons that adversely affecting you to secure your mortgage renewal. Private Lenders is always an option for you. It has fewer restricting terms and condition as compared to other lenders.
|Type of Lenders
|Major Financial Institution like Canada's Big Banks. They have strict policies
|More flexible with guidelines compared with traditional lenders
|High risk tolerance. Even those with poor credit may qualifies.
By understanding the reasons of denial and exploring right approach with proactive mindset, you can work towards solution that aligns best with your financial needs. Communicate with your lenders, seek for professional guidance and choosing alternative options can lead you to secure your home ownership journey. Contact a Mortgage Specialist today to learn on how to start path toward a successful renewal.