Mortgage renewal denied or unaffordable: what happens next?

A guide in the Mortgage Trouble centre

Compare the renewal offer, replacement financing and household budget before deciding what to do next.

If your lender will not renew, or the new payment is beyond your budget, you still have decisions to make. Confirm the lender’s position, compare the financing available through a licensed mortgage professional, such as a mortgage broker or agent, and examine the debts competing for your income.

A refusal by one lender does not mean every lender will refuse. It also does not establish that you are insolvent. The useful question is whether any available arrangement leaves your household able to pay its bills.

Start before the maturity date. If a Notice of Sale has already arrived, speak with a lawyer promptly and read Behind on your mortgage in Ontario.

Get four answers before signing a replacement mortgage

1. What will your current lender offer? Get the decision, rate, payment, term and costs in writing. Ask whether another arrangement is available.
2. What can your mortgage broker arrange? Compare bank and other institutional options, including alternative lenders, on your actual file.
3. If private financing is proposed, how will it end? Identify the full cost, the balance due and a realistic source of repayment. Do not assume another renewal.
4. Are other debts making the mortgage unaffordable? If the household cannot meet its obligations, a Licensed Insolvency Trustee can assess the debt position before you add more secured borrowing.

If an answer is missing, get the number or document. Pressure to meet a deadline makes a clear comparison more important.

What happens if the mortgage is not renewed?

The balance becomes due at the end of the term. You need to renew, arrange another agreed solution or pay it out. Not renewing is not itself the default; failing to pay the amount due at maturity is.

Ask whether the lender will consider an extension and what it would cost. Get any agreement in writing. A pending application with another lender is not an agreed extension.

If the balance is not paid and the lender enforces, it must follow the applicable process. Do not treat those enforcement steps as extra time you can safely use. The Power of Sale in Ontario guide explains the notice and sale process.

Can a bank deny a mortgage renewal?

Yes. A lender is not required to offer a new term. Ask why it has declined or changed its offer, and what information it relied on.

• Credit: ask whether missed payments, collections, errors or other information on your file affected the decision.
• Income and debts: a lower income or higher debt payments may change the lender’s assessment.
• The property: its value, the amount borrowed against it or the lender’s policies may be relevant.

Do not assume every renewal or switch has the same qualifying requirements. Ask your mortgage broker which rules apply to the proposed transaction, particularly if you are increasing the borrowing or changing the repayment period. Approval still depends on the lender and your circumstances.

Should you use a B lender or a private lender?

They are different options. Institutional alternative lenders, often called B lenders, may serve borrowers who do not fit a major bank’s criteria. A non-bank lender is not automatically a private lender. Ask your mortgage broker who is lending, what product is offered and how its term, payment and costs compare.

An alternative mortgage may be a workable financing arrangement. It should not automatically be described as a one-year bridge. Assess the actual offer and the household’s ability to carry it.

Private financing can also make sense for a specific purpose. For example, it may allow time for an orderly sale where the expected proceeds can repay the loan and costs. The plan needs realistic figures and enough room for delays.

Before accepting a private mortgage, ask:

• How much money is available after payouts and all fees?
• What are the interest payments and the principal due at maturity?
• Is renewal a right under the agreement or a further decision for the lender?
• What sale or refinancing will repay the loan, and what evidence supports that expectation?
• What happens if that plan takes longer or fails?

Keeping the home for another year is not, by itself, a repayment plan. If the only next step is another expensive loan, assess the wider debt problem now.

How much could the mortgage payment increase?

Use your current balance, remaining repayment period and written rate offers. The example below holds the balance at $650,000 and the remaining amortization at 20 years, so you can see the effect of the rate alone.

Illustrative monthly mortgage payments, before fees

Hypothetical fixed rate	Monthly payment
1.99%	$3,283
3.94%	$3,907
5.99%	$4,626
6.09%	$4,662
9.00%	$5,780

These are hypothetical rates, not current offers or rates assigned to particular lender categories. Payments are rounded to the nearest dollar and use semi-annual compounding with monthly payments. Fees are excluded. The low-rate row does not reconstruct what this household paid years ago.

At 3.94%, the payment is about $625 more than the 1.99% comparison, using unrounded calculations. But the mortgage increase may be only part of the problem.

Suppose the household also owes $45,000 on credit cards. An assumed minimum payment of 3% of the balance is $1,350 a month. At an illustrative annual interest rate of 20.99%, roughly $787 a month is interest, using a simple annual-rate-divided-by-12 estimate. Actual card interest and minimum payments depend on the account terms and billing period.

Put those other payments beside the renewed mortgage, housing expenses and living costs. If a consumer proposal is available, substitute its proposed payment for the payments it would replace. Do not remove the debts from the budget without including the replacement payment.

Could dealing with other debt make the mortgage affordable?

A consumer proposal may address unsecured debt for an eligible borrower. It does not remove the need to pay the mortgage or guarantee renewal.

A Licensed Insolvency Trustee must first assess whether you are insolvent and which options fit. The proposed payment depends on the actual financial position, including income and assets. Home equity can affect what creditors expect to receive.

The test is practical: after allowing for the proposed payment, mortgage and all other expenses, does the budget work? If it does not, consider housing and sale options as well. Do not treat a proposal as a way to make any mortgage affordable.

The rules concerning an existing mortgage during a proposal differ from the lender’s decision about renewal or new borrowing. Mortgages and a Consumer Proposal explains those distinctions.

Can you renew with bad credit?

Ask your current lender and your mortgage broker about your actual file. There is no approval promise on this page. A lender’s decision to renew an existing mortgage and another lender’s decision to make a new loan are different decisions.

Compare any offer on full cost and affordability. If unsecured debt is the main obstacle, borrowing more against the home may increase the risk without resolving the shortfall.

An insolvency filing affects credit. Read Your credit after a consumer proposal or bankruptcy for that discussion. Do not choose a filing on a promise of fast credit recovery.

Own a second property or have a large debt balance?

Tell the trustee before deciding to sell, surrender a property or file. A second property’s mortgage counts toward the consumer proposal debt limit; debt secured by your principal residence is excluded from that count. The full mortgage and a shortfall after a sale are not the same amount.

The sequence can affect the assessment. A Division 1 proposal may be a route to examine where a consumer proposal is unavailable. Owning two properties does not, by itself, settle which options you have.

For the housing calculation, see The condo that no longer pays for itself or Selling your house when you have too much debt.

Make the next decision with the full budget

Bring the renewal letter, mortgage balance, written financing offers, income and expenses, and all other debt balances. Include any family loan being considered; it is another obligation, not free room in the budget.

If the debt payments cannot be maintained, contact Paul Franchi, Licensed Insolvency Trustee, about your Ontario situation, or leave a voicemail at 647-492-9283.

Return to the Mortgage Trouble centre for related guides. This page provides general information, not advice about your mortgage or eligibility for an insolvency proceeding.