One of the elements of Canadian law is that no current loan can have a term for longer than 10 years. So if you take out a typical mortgage, you will likely assume a term that runs between 15 and 25 years – which means that you will have to go through the renewal process several times. Interest rates climb significantly as terms increase. For example, according to rates in December 2018, a one-year mortgage can be found for a rate as low as 3.19%, an eight-year loan comes in at 6.6% at the lowest. Depending on how the rate market is at your signing, you can save significant money if you take a shorter term.
This means, though, that when your first mortgage nears the end of its term, you either renew with your existing lender or move your loan to another lender. Moving your loan involves talking to other lenders and, in many cases, paying additional fees to start another loan somewhere else. If you’ve been making your payments on time, your lender is likely to renew your loan and keep the revenue coming in. However, renewal refusal is a problem that many Canadian borrowers encounter. What can you do when you get a letter indicating that your lender is unable to renew your mortgage?
Here’s how the process works. A few months before your existing mortgage comes to an end, you will receive a renewal offer in the mail. It will include the new rate as well as the term of the loan, which is frequently the same length as the one that is coming to an end. You fill out a slip and send it back. This does not mean that your renewal is approved; it just means that you have accepted the offer.
But what if you find that the lender is unable to renew? This means that your lender may have gone back through such metrics as your credit score and see if your debt has increased to the point where you can no longer afford to service it along with your mortgage. They may also look at your current employment and income situation. If those findings produce anything that presents a concern, the lender can issue a renewal refusal.
If your current lender is an “A” lender (a bank or credit union), then you should think about talking to a “B” lender, or a trust company or an institutional lender that focuses on clients with lower credit and/or more debt than what an “A” lender will approve. If your credit score has dropped enough, though, even a “B” lender can say no. At that point, you can either talk to a private lender or put your house on the market.
A private lender is an individual or entity looking to invest in the real estate market at the higher interest rates that private mortgages provide. While a private lender also looks at your credit score, income and employment, the value of the home is more important than it is to “A” and “B” lenders. You can expect a term of up to a year or two, as well as interest rates that are significantly higher than what you were paying if your initial mortgage was with an “A” lender. However, many private loans just ask for interest-only payments during the term, which gives you time to knock off those other debts so that you can qualify for a more traditional loan when the private note comes to term.
Amansad Financial can connect you with private lenders should you have your renewal refused and find difficulty with other “A” and “B” lenders. Reach out to one of our private mortgage experts if this describes your situation today!