Mortgage Basics

What to Do if Your Mortgage Renewal is Denied: Solutions and Alternatives

What to Do if Your Mortgage Renewal is Denied: Solutions and Alternatives
Written by
  • Ashley Howard
| 11 September 2023
Reviewed, 18 September 2023
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    As a homeowner, you rely on your mortgage renewal to continue financing your home. However, there may be instances where your current lender denies your mortgage renewal. This can be due to various reasons, such as missed payments, a poor credit score, or an unmanageable debt load. 

    While being denied a mortgage renewal can be disheartening, it’s important to know that there are solutions and alternatives available that do not necessarily require selling your home. This article will look at what to do if your mortgage renewal is denied and provide actionable steps to help you navigate this situation.

    Key Takeaways

    • Your mortgage renewal can be denied for various reasons, like missed payments, high debt, loss of income, or poor credit score. 
    • There are ways to manage being denied at renewal, including finding a co-signer, switching to a new lender, increasing income, or downsizing. 
    • Monitoring and maintaining a healthy credit score is vital to help your renewal go smoothly.

    Reasons for Mortgage Renewal Denial

    Before we get into the solutions, it’s important to touch on why your mortgage renewal may be denied. Understanding these reasons can help you address the underlying issues and, if needed, explore alternative options.

    Some common reasons include:

    • Missed Payments: Your lender may view you as a higher-risk borrower when there is a history of missed mortgage payments. In this case, they may simply choose not to renew your mortgage to avoid contacting you each time to arrange a payment or discuss options. 
    • Poor Credit Score: A significant decrease in your credit score can negatively impact your chances of qualifying for a mortgage renewal. Lenders rely on soft credit checks to assess an individual’s creditworthiness. Your creditors may pull a soft credit check at any time without affecting your credit score.
    • High Debt Levels: Lenders may be hesitant to renew your mortgage if you have accumulated significant debt since you obtained your mortgage. This is particularly true if your debt-to-income ratio was initially high at the onset of your mortgage. High utilization of your revolving credit facilities will lower your credit score.
    • Financial Difficulty: Lenders may refuse to renew your mortgage if they perceive signs of financial difficulty, such as job loss, significant change in income, or other life circumstances that impact your ability to make timely payments. Lack of timely or full minimum or scheduled payments to your credit facilities can lower your credit score.

    Solutions for Denied Mortgage Renewal

    Now that we’ve reviewed why your mortgage renewal can be denied, let’s look at the solutions that may be available if you find yourself in this situation.

    Find a Co-Signer or Guarantor

    Having someone cosign on your mortgage can help you qualify for a renewal if you are unable to do so alone. A cosigner agrees to take on the financial responsibility to repay the loan should you default, which reduces the risk to the lender. However, adding a co-signer will mean adding them to your property’s title and involve additional legal costs. 

    If adding someone to your property’s title is not a possible solution for you, then you could consider adding a guarantor. Unlike a co-signer, a guarantor will only be a co-borrower and not be added to the title of your property.

    Contact a Mortgage Broker 

    If your current lender denies your mortgage renewal, it’s advisable to contact a mortgage broker. Mortgage brokers have access to a wide range of prime and subprime lenders who may be willing to renew your mortgage, even if your previous lender will not. 

    These experts have access to a wide range of lenders, though they may come at higher rates as your mortgage may come with higher risks to them. They can assess your financial situation, help you find the best mortgage options, and negotiate on your behalf. 

    Keep in mind that going with a subprime lender means you’ll have to pay legal, lender and broker fees – which could easily add up to 3% of your mortgage balance on top of the higher interest rate.

    Improve Your Credit Score 

    A poor credit score can be a significant barrier to mortgage renewal. Take steps to improve your credit by making timely bill payments and reducing your overall debt. This includes paying off credit card balances and other outstanding debts. It’s important to consistently monitor your credit file to ensure it’s accurate and up to date.

    Consider Debt Consolidation 

    Consolidating your debts can help streamline your payments and improve your debt-to-income ratio. This involves combining multiple debts into a single loan with more favourable terms, making it easier to manage your finances. Consult with a financial advisor or mortgage broker to explore this option.

    Increase Your Income

    Increasing your income if it’s insufficient to service your debt can help strengthen your case for mortgage renewal. This can be achieved by applying for a promotion or higher paying role, renegotiating your salary, picking up extra shifts, taking a part-time gig or starting a side business. 

    Consider Refinancing 

    Refinancing is an alternative that allows you to renegotiate the terms of your mortgage, reducing your monthly payments or interest-carrying costs. However, keep in mind that refinancing always requires meeting specific eligibility criteria, including creditworthiness and income verification.

    Downsize or Sell Your Home 

    While not always the most desirable option, downsizing or selling your home may alleviate financial stress if your mortgage renewal is denied. By opting for a more affordable home with a lower mortgage, you can reduce your financial obligations and improve your chances of securing a new mortgage with lenders. 

    The Importance of Credit Checks in Mortgage Renewals

    Credit checks do play a role in mortgage renewals. Lenders typically conduct soft credit checks to assess your creditworthiness and determine the rates they’ll offer you at renewal. Practice responsible financial management and regularly review your credit report to identify any discrepancies or areas for improvement.

    While not all lenders may perform a credit check during renewal, monitoring and maintaining a good credit score is necessary for positive financial health. Late payments and excessive debt can negatively impact your credit score, making qualifying for a mortgage renewal or refinance in the future even more challenging. 

    Frequently Asked Questions

    How common is it for a mortgage renewal to be denied?

    Luckily, it’s rare for a mortgage renewal to be denied if you are renewing with the same lender. As long as you’ve made your mortgage payments on time, haven’t had any significant changes to your credit report in the last 3 years (soft credit check), and you haven’t made significant changes to the collateral (property) that could affect its resale value.

    How can I tell if my mortgage renewal will be denied?

    If you’ve consistently missed mortgage payments, you may be at risk of having your mortgage renewal denied. If you are close to renewal and haven’t received an early renewal call or notice (usually 120 to 180 days before your maturity date) from your lender, you will need to contact them as soon as possible. 

    Proactively reviewing your mortgage and discussing your available options to remedy the situation may be seen as a sign of improvement.

    How can I prevent my mortgage renewal from being denied?

    To ensure your mortgage renewal goes smoothly, it’s important to consistently make your mortgage payments on time, keep your credit score healthy, and keep your contact and employment information up to date with your lender.

    Final Thoughts

    While being denied a mortgage renewal with your lender can be disappointing and a little scary, it’s important to know that alternative solutions are available. You can navigate this situation by exploring and considering these options with a mortgage professional. 

    Additionally, staying proactive by routinely monitoring your credit report and taking steps to reduce debt will help strengthen your financial situation. Each individual’s financial circumstances are unique, and it’s crucial to consult professionals who can provide personalized advice tailored to your situation. Are you close to renewal, or has your renewal recently been denied? Contact us to see how you can find a solution while you compare and save on your mortgage renewal today.