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What happens if your mortgage renewal is denied?

This piece was originally published on August 4, 2020, and was updated on April 24, 2024.

Tips for renewing your mortgage in 2024:

  • Start the renewal process early: Many lenders will allow you to renew your mortgage up to 120 days before the end of your term.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: 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.

When you take out a mortgage, you’ll sign a contract with your lender that outlines its specific features, such as 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 is called the mortgage term, and it lasts for a set number of years – typically five, though two- and three-year mortgage terms are also common in Canada.

When your mortgage term reaches its maturity date, you’ll need to renew your outstanding mortgage balance for another term. In fact, most borrowers will do this five to six times before their mortgage is fully paid off.

Watch this informative video below with some helpful advice on renewing your mortgage in 2024, then read on for more information. 

At mortgage renewal time, you’ll have the choice to either stick with your existing lender, or to refinance your mortgage and apply for a new rate with a different lender. Your current lender is keen to retain your business, however, and will make the process as seamless as possible by sending you an offer to renew your mortgage before your term expires.

The offer will include a new mortgage rate, typically for the same length of time as your current term, as well as a slip that you can sign and send back. While this might be convenient, it doesn’t mean you’ll get approved. It can also cost you more over the long-term, which is why we suggest switching providers at renewal time.

But, what happens if your mortgage renewal isn't approved? First of all, don’t panic – there are some steps you can take. Here’s what to do if your mortgage renewal is denied.

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

Not sure where to start? Let us help you get started

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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 it doesn’t need to re-qualify you (for example, determine your debt service ratios and require you to pass the mortgage stress test). Typically, as long as you’ve made all your mortgage payments throughout your term, there’s no reason your current lender would deny your mortgage renewal application.

However, your lender will still review your current financial situation and see if you’ve racked up more debt than it believes you can afford to repay, taken a credit score hit, or if your employment situation has changed for the worse. If anything about your finances concerns your current lender, it can choose not to renew you.

Renewing at a time when interest rates are much higher – such as they are today, following 10 historic rate hikes from the Bank of Canada over the last 18 months – can also increase the risk of having your mortgage renewal denied. 

Both fixed and variable mortgage rates have soared since March 2022, when the central bank kicked off its hiking cycle, bringing its Overnight Lending Rate from a pandemic-era low of 0.25% to 5% today, with the Prime rate sitting at 7.2%. While expectations are growing that the BoC plans to start cutting rates again later this year, today’s available mortgage rates are still much higher than when many borrowers first entered their mortgage contracts, back in 2018 and 2019.

That’s already had a significant impact on borrowers’ abilities to pay their mortgage; according to StatCan, interest payments have increased 90% since March 2022, while the amount borrowers are putting toward their principal loan has shrunk by 16.8%. An additional survey conducted by Ratehub.ca also 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

One way to prepare ahead of time for this scenario is to run your current mortgage through our  mortgage payment calculator to see if you might struggle to make payments at current interest rates. While mortgage rates are currently elevated, experts believe that the Bank of Canada will begin effecting rate cuts towards the end of 2024 and into 2025. Think about ways that you might be able to take advantage of lower rates down the road to help your situation. 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

If your current lender denies your mortgage renewal, or if you just want to shop around for a better offer, you can try to renew your mortgage with a new lender (you can contact a mortgage broker or mortgage agent to help you find a new lender). Unfortunately, your chances of being denied by a new lender are actually higher than if you stay with your current lender. This is because you need to submit a brand new mortgage application with your renewal.

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

If you have time before your renewal date, use our mortgage affordability calculator to see how much you could borrow if you were looking for a new mortgage today.

Bear in mind that, as a new applicant, you will need to pass a mortgage stress test of either 5.25% or your contract rate + 2% – whichever is higher. (In today's market, both the best fixed and variable rates on the market are higher than 3.25%, making the first criteria null and void.) In fact, the current average stress test is hovering around 7.7%, based on an average five-year fixed mortgage rate of 5.7%.

What to do if your mortgage renewal is denied

Okay, so your mortgage renewal was denied – what’s the next step?

  • If you were rejected by a new lender: Let’s say you tried to shop around for a better offer, but were denied by a new lender. The first thing you need to do is talk to your current lender, to see if it will renew your mortgage.
  • If you were rejected by your current lender: If both a potential new lender and your current lender deny your mortgage renewal, or if your current lender rejects your signed renewal slip outright, you’ll need to look at other options.

Mortgage renewal denial options:

If your mortgage renewal has been denied from your current lender, here are your options, from best to worst:

1. Find a B lender

If your original mortgage was with an A lender, like a bank or credit union, then you can talk to B lenders about your situation. B lenders are typically trust companies or bad credit institutional lenders. They are more likely to lend to people with lower credit scores and/or more debt than A lenders are.

2. Talk to a private lender

If your credit score is extremely low, you can even be denied by a B lender. If this happens, you can talk to a private lender. This is far from ideal, as private lenders have some of the higher mortgage rates on the market, which is likely to cost you a lot more in interest over time.

Also read: More borrowers than ever are turning to private mortgages

3. Sell your home

If you can’t get a mortgage that suits your finances, you may need to consider selling your home. This is the worst possible option, because it will require you to sell and move on short notice. If you’re close to your mortgage renewal date, you may not have time to finish the sale before your term expires. In this situation, you might need to take out a short-term or open mortgage to tide you over, probably from a B lender or private lender.

The bottom line

While it’s rare for a mortgage renewal process to reach the point where you’ll need to sell your home, it can happen if your financial situation has drastically changed for the worse. This is why it’s so important to make your monthly mortgage payments and maintain a good credit score. By doing so, you should never have a problem getting at least your current lender to renew your mortgage for another term.

Also read:

*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%.