When your current mortgage term reaches its maturity date, that means it is time to renew the balance on your mortgage for another term. This is a process you are likely to repeat a number of times until your mortgage is paid off in full.
Your lender will send you a renewal notice in the mail, right before your term expires. The renewal notice will offer a new mortgage rate plus term, usually for the same length as your current mortgage, and you are expected to sign to accept and send back.
However, signing the mortgage agreement doesn’t necessarily mean you will be approved. It also doesn’t guarantee you the best rates which is why it’s recommended to shop around at renewal time. But what happens if you are not approved?
Why You May Not Be Approved By Your Current Lender
You would think the process would be easy if you decide to renew with your current lender. The one good reason to stay with your current lender is that you will not need to re-qualify. As long as you have made all your mortgage payments throughout the duration of your term, there isn’t any reason your current lender would deny your renewal application.
However, even though you don’t need to re-qualify again, your lender will still review your current financial situation, including your credit score, and see if you have more debt than you can afford to repay, or if your employment status has taken a turn for the worse. If anything about your financial state of affairs looks concerning to your current lender, they can choose not to renew you.
Why You Might Not Be Approved By A New Lender
You can try to renew your mortgage with a different lender if your current lender denies your mortgage renewal, or if you want to find a better deal. Unfortunately, your chances of being denied by a new lender are much higher than if you stay with your current lender. This is due to the fact that you will need to submit a brand new mortgage application with your renewal.
Other than the outstanding balance of your mortgage, the new lender knows nothing about your financial situation. Before they can approve your application your income will need to be verified and you still meet the specific credit requirements. If you have missed mortgage payments or your credit score has significantly worsened, there is a good chance you could also be denied by a new lender. In this instance, it would be best to stay with your current lender since you likely won’t need to re-qualify.
What To Do If Your Mortgage Renewal Is Denied
So you tried to shop around for a better deal, but was denied by a new lender. The next step will be to speak to your current lender, to see if they will renew your mortgage. You will need to consider alternative options, if both a new lender and your current lender deny your mortgage renewal.
If your original mortgage was with an A lender, then you can talk to B lenders about your situation. B lenders are bad credit institutional lenders and trust companies that can lend to individuals with lower credit scores than an A lender would.
However, you can even be denied by a B lender if your credit score is extremely low. Then you have two final options: working with a private lender or selling your home.
While it is rare for a mortgage renewal process to reach the point where you will need to sell your home, it can happen if your financial situation has dramatically changed for the worse. This is why it is so important to make your monthly mortgage payments and maintain a good credit score. If you do this, you should not not have a problem, at least with your current lender, renewing your mortgage for another term.
