What happens if your mortgage renewal is denied?

Alyssa Furtado

December 31, 2024

This piece was originally published on August 4, 2020, and was updated on December 31, 2024.

Tips for renewing your mortgage in 2025:

Start the renewal process early. Many lenders will allow you to renew your mortgage up to 120 days before the end of your term. By starting early, you’ll have time to explore options and address potential issues, such as improving your credit score — critical since banks typically check credit for mortgage renewal applications.
Shop around and know your options. Comparing the market or working with a pro like a mortgage broker can help you find the best mortgage rate. Did you know that getting a mortgage rate even 0.25% lower can save a borrower $91 per month and $1,092 per year?*
Take out a shorter-term fixed rate, such as a two- or three-year term. This provides protection against volatile interest rate changes and allows borrowers to make a change sooner when their term comes up for renewal.
Make a lump sum payment. If possible, reduce your overall mortgage size before renewal by making a lump sum or accelerated monthly payment.

*Based on a $7,000 home price, 10% down payment, amortized over 25 years, and a five-year fixed mortgage rate of 4.64% vs. 4.39%.

When you first take out a mortgage, you sign a contract with your lender that outlines key details like the interest rate you’ll pay, whether it’s open or closed, and any additional perks, such as the ability to make accelerated payments, or porting from one property to another. This contract lasts for a set number of years, known as your mortgage term. In Canada, the traditional mortgage term has typically been five years. However, recent data from the Canada Mortgage and Housing Corporation (CMHC) shows that since March 2023, a growing number of homeowners have been opting for fixed-rate terms between three and five years rather than locking in for the full five-year stretch.

As your mortgage term ends — a point known as the maturity date — you’ll need to renew your remaining balance for another term if you still owe money. In fact, most borrowers will do this five to six times before their mortgage is fully paid off.

Watch this informative video below to know about the mortgage rule changes in 2025, then read on for more information.

At mortgage renewal time, you might wonder: Will my mortgage automatically renew if I don’t take action? You’ll have the choice to either stick with your existing lender or to shop around for a new rate and term with a different lender. Your existing lender will often try to keep your business by sending you a straightforward renewal offer—complete with a new mortgage rate and term length—well before your current term expires. This approach may seem convenient, but there’s no guarantee you’ll be approved for the renewal on the terms offered, and it might not be your most cost-effective option in the long run.

So, what if your renewal doesn’t go as planned and you receive a denial? Don’t panic. While it may feel overwhelming, there are practical steps you can take to secure the financing you need or consider alternatives. Here’s what to do if your mortgage renewal is denied.

Also read: Can you pay off your mortgage at renewal? Should you?

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Why your mortgage renewal was denied

Let’s start by going over the two ways your mortgage renewal application can be denied, depending on whom you’re working with.

1. Renewal denied by your current lender

One good reason to stick with your current lender is that they usually don’t require a full requalification process, such as determining your debt service ratios. In most cases, as long as you’ve made all your payments on time, there’s no immediate reason your current lender would deny your mortgage renewal.

However, your lender isn’t obligated to renew your mortgage. They will still review your financial situation to ensure you remain a reliable borrower. If your circumstances have changed — such as accumulating more debt, experiencing a drop in your credit score, or trying to renew when you’re unemployed — your lender may decide that you can’t afford your mortgage renewal.

Another potential issue arises during periods of higher interest rates. For example, the 10 historic rate hikes from the Bank of Canada between 2022 and 2023 caused mortgage rates to climb significantly, leaving many borrowers struggling to adapt. While rates have started to stabilize and trend lower in 2024, their impact lingers. A survey by Ratehub.ca found that 67% of current mortgage holders are concerned about being able to make their mortgage payments when they renew at a higher rate.

Also read: Renewing your mortgage in 2024? Here’s what to expect

To reduce the risk of a renewal denial, it’s crucial to assess your financial standing ahead of time.

Run the numbers: Use our mortgage payment calculator to estimate how today’s interest rates might affect your ability to make payments.
Improve your debt ratios: Aim to reduce your debt-to-income (DTI) ratio by paying off high-interest debts or consolidating smaller loans.
Strengthen your credit: Avoid taking on new credit in the months leading up to renewal. Monitor your credit score closely and correct any inaccuracies on your credit report.

While mortgage rates are currently elevated, experts believe that the Bank of Canada will continue cutting rates into 2025. This could provide an opportunity to renew at lower rates in the near future. You can discuss flexible options with your lender to take advantage of potential rate cuts down the line. The video below gives some great tips on the topic. Check it out, and then read on for more information.

2. Renewal denied by a new lender

Switching lenders at renewal time can be a smart way to secure better rates and terms, especially if your current lender’s offer isn’t competitive. However, it’s important to note that your chances of being denied by a new lender are typically higher than with your current one. That’s because renewing with a new lender requires you to submit a brand-new mortgage application, subjecting you to their specific approval process and criteria.

The good news is that, as of November 21, 2024, all mortgage borrowers switching to a new lender upon renewal will be exempt from the mortgage stress test, provided their mortgage size and amortization period remain unchanged and their mortgage originated at a federally-regulated financial institution. This new exemption makes it easier to transition to a new lender without having to requalify under the often-stringent stress test rules.

A new lender knows nothing about your financial situation other than the outstanding balance of your mortgage, which they will only know after looking at the renewal slip provided by your current lender. As such, they will need to verify your income and ensure you meet the specific credit requirements required to approve your application. If you’ve skipped mortgage payments or have significantly damaged your credit score, you’ll be at a high risk of being denied by a new lender. In that case, it might be best to stay with your current lender since it doesn’t need to re-qualify you.

However, if switching lenders is your goal, let’s see how you can improve your likelihood of approval:

Start early: Begin researching and contacting potential lenders or mortgage brokers at least four to six months before your renewal date. This gives you time to shop around and address any issues in your financial profile.
Use a mortgage broker: Brokers can help you find lenders that specialize in borrowers with unique situations, such as lower credit scores or irregular income.
Check your credit report: Obtain a copy of your credit report and correct any errors that could negatively affect your score.
Lower your debt-to-income ratio: Pay down high-interest debts and avoid taking on new credit to improve your DTI ratio before applying.
Highlight your payment history: While new lenders don’t have access to your full payment history, you can provide proof of consistent mortgage payments (e.g., bank statements or lender records) to strengthen your application.

Why renew with Ratehub.ca?

Did you know: You don't have to renew with your lender? You can usually get a lower rate by switching at renewal. Your existing lender has less incentive to provide you with the most competitive rates, as they already have your mortgage business. Auto-renewing means leaving money on the table.
You could save $13,857 on average by switching with Ratehub.ca vs renewing with your bank. Speak to a Ratehub.ca mortgage agent today to see how easy switching can be.
Switching comes with cash bonuses of up to $4,000 - that could buy you a vacation!

What to do if your mortgage renewal is denied

So, your renewal application was denied — what now? The good news is that being denied doesn’t mean you’re out of options. Whether you were turned down by a new lender or your current lender, there are steps you can take to regain control of the mortgage renewal process.

If you were rejected by a new lender

If you shopped around for a better offer but were denied by a new lender, your first move should be to circle back to your current lender. They already have your payment history on record and might be more flexible than a new lender when it comes to approving your renewal. Start by having a candid discussion with your lender to understand your options. Ask if they can offer a more manageable rate or payment structure. For example, extending your amortization period can reduce monthly payments and improve affordability.

If your financial challenges are temporary (e.g., a recent job change or unexpected expenses), providing this context may help sway the lender’s decision.

If you were rejected by your current lender

If your current lender denies your mortgage renewal or rejects your signed renewal slip outright, it’s time to explore alternative solutions. Being proactive is key:

Work with a B lender: If your original mortgage was with an A lender (such as a bank or credit union), approach a B lender. These are typically trust companies or institutions that cater to borrowers with lower credit scores or higher debt levels. While B lenders often charge slightly higher interest rates, they’re more flexible with their lending criteria.
Explore private lending: If a B lender denies your application, your next option is a private lender. Private lenders are more willing to take on high-risk borrowers but often charge much higher interest rates and fees. While this option can keep you in your home temporarily, it’s important to evaluate whether the long-term cost is sustainable.
Refinance with a co-signer: If your income or credit profile is a barrier, a trusted co-signer with a stronger financial profile may help you qualify with another lender.
Consider bridge financing: If your home equity is strong but your financial situation temporarily disqualifies you for a traditional renewal, bridge loans or short-term private financing can help you stay afloat until you can secure a longer-term solution.
Sell your property if necessary: If no lender can offer a mortgage that suits your financial situation, selling your home may be the last resort. This can be a tough decision, especially if your renewal date is approaching quickly. If you don’t have enough time to complete a sale before your term expires, you might need to secure a short-term or open mortgage from a B lender or private lender to tide you over.

Also read: Can your mortgage lender force you to sell your home?

The bottom line

Facing a mortgage renewal denial can be overwhelming, but it’s not the end of the road. By staying proactive, maintaining good credit, and exploring all available options, you can secure a solution that works for your unique circumstances. Remember, while rare, a bank can deny mortgage renewal in Canada, so it’s essential to take the necessary steps to ensure a smooth renewal process.