Of course, banks don’t just arbitrarily reject mortgage extensions. If you have been making your mortgage payments diligently and on time, most often they’ll need to keep you as a borrower. But if lenders have reason to imagine your risk level has modified – in a negative direction. For example, for those who’ve missed payments, your income, debt or credit rating have modified significantly, or the banks imagine you possibly can not afford your monthly running costs as a consequence of rate of interest increases, your mortgage extension could also be rejected.
Although this remains to be quite rare, greater than 99.8% of mortgage holders currently have a superb status, Canadian Bankers Association– there are fears that declines in renewals could grow to be more common. That’s because borrowers who took out mortgages in 2021 and early 2022 – when house prices were near their peak and rates of interest were very low – face “rate shock” renewals with average payment increases of twenty-two% this yr, almost 25% in 2025 and greater than 30% in 2026. Bank of Canada (BoC) Estimates. In addition, in response to a survey for Mortgage Professionals CanadaAlmost 1 / 4 (23%) of mortgage holders say that even a small rate of interest increase would cause them to have payment difficulties.
So what are you able to do in case your mortgage extension is rejected? Here are some options:
Talk to your current lender
It’s essential to seek out out why your application was denied. There could also be an easy solution. For example, if the rationale is a drop in your credit rating but you have been paying off all of your debts on time, check your credit reports for errors. If your credit rating has indeed suffered, ask your lender if there are any conditions under which they’d reconsider and approve the extension, equivalent to finding a co-signer with good credit.
See the Canadian Mortgage Charter
Because the federal government anticipates that borrowers may have assistance to pay their mortgages at higher rates of interest in the event that they renew, it recently worked with financial institutions to develop the Canadian Mortgage Charter. The charter outlines the varieties of relief you possibly can expect out of your bank that may make it easier to get an extension approved, equivalent to a short lived extension of repayment to lower your monthly mortgage payments, the power to make lump sum payments to avoid negative amortization and waiving fees or penalties that may normally be related to such provisions. Although the charter shouldn’t be law — meaning banks do not have to comply with it — the federal government strongly encourages them to achieve this and says it would closely monitor the implementation of the relief measures. If your lender is not playing ball, you possibly can file a criticism with the Financial Consumer Agency of Canada (FCAC) website.
Contact other banks
Another measure under the Canadian Mortgage Charter is that Canadian banks and other federally regulated financial institutions will not be required to manage the stress test for those who switch lenders at renewal and have a Canada Mortgage and Housing Corporation-insured or high-interest mortgage. This means you possibly can qualify with a brand new lender based on market rates, relatively than the minimum rate (which adds a 2% buffer or uses a 5.25% minimum rate, whichever is higher). In theory, this could improve your possibilities of finding one other bank willing to refinance your mortgage in case your current lender refuses to renew. Of course, the rationale behind your current lender’s reluctance to renew your contract could also deter other banks.
Consult a mortgage broker
Mortgage brokers know which banks and other lenders are most willing to refinance a mortgage for borrowers in your situation. And they negotiate in your behalf, which may prevent time, stress and money. Brokers may also suggest ways to present yourself in the perfect light to latest lenders – for instance, by paying off or restructuring outstanding loans in case your overall debt service ratio is just too high, or by getting a co-signer if needed.
