My mortgage renewal was denied, or I can’t afford the new payment: what happens next

My mortgage renewal was denied. What happens now?

A refusal is not a foreclosure, and a higher payment gives you a calculation to make before the term ends. Compare the lender’s offer, any replacement loan and the household budget together. If unsecured debt is squeezing the mortgage payment, that debt belongs in the same assessment.

I am Paul Franchi, a Licensed Insolvency Trustee in Ontario, and a lawyer by training. A renewal letter is one of the moments when a household discovers that the budget no longer works, and it is the moment I would most like to reach people, because at renewal there is still time and there are still choices. By the time a lender is enforcing, most of them are gone.

A mortgage taken at a lower rate can renew at a payment the household cannot carry. The size of your own change is the starting point: get the renewal offer, the current balance and the remaining amortization, then calculate the payment before choosing a route.

This page walks the whole thing: why a lender says no, what happens if you do nothing, what the new payment really means in your monthly picture, which routes exist and what each one costs, and whether dealing with other debt could make it possible to keep paying the mortgage.

Four questions before you sign a replacement mortgage

1. Will the existing lender renew, and what is the exact payment and total cost? Ask in writing before assuming the answer is no.
2. Can another prime or alternative lender approve the same balance without new borrowing or a longer amortization? Compare the full cost, not only the advertised rate.
3. If the proposal is a private loan, what is the all-in cost and the written twelve-month exit? Include lender, broker, legal, appraisal, discharge and renewal fees.
4. Is unsecured debt taking the money the renewed mortgage needs? If the household may be insolvent, a Licensed Insolvency Trustee can assess the whole debt picture before more secured borrowing is added.

If one of those answers is missing, the next useful step is to get the number or the document, not to sign faster. Still not sure where you stand? Send me your question. I read them myself and I answer them personally. If you want to talk through next steps, I can help directly in Ontario, and the other Licensed Insolvency Trustees I work with cover the rest of Canada. Paul Franchi, Licensed Insolvency Trustee.

Can a bank deny a mortgage renewal in Canada, and why did mine?

Yes. The law does not force a lender to offer you a new term when the old one ends, and a lender can decline or can offer terms it knows you cannot take.

Three things to review with the lender are your credit, your income and debts, and the property.

Your credit. Missed payments elsewhere, a collection, an insolvency filing or a changed score may matter to the lender. Ask what it has assessed, what information it needs and whether correcting an error or updating your file would change the offer.

Your income and debts. The lender re-runs its arithmetic on what you earn against what you owe. If your debt load has grown, or your income has fallen, the ratios that qualified you five years ago no longer do. Whether you must pass the federal stress test again matters here, and for the federally regulated lenders, which the banks are, the regulator has said where it stands: it does not expect the minimum qualifying rate to be applied again on a renewal with your existing lender (OSFI, 16 October 2023), and since 21 November 2024 it does not expect it on a straight switch of an uninsured mortgage to another federally regulated lender either, so long as you are not borrowing more or stretching the amortization. That is the regulator’s own statement, and it is dated; it says nothing about credit unions, private lenders or any other lender OSFI does not regulate. Insured mortgages sit under separate rules and this page does not speak for them.

The property. Ask whether the lender’s valuation, loan-to-value limit or policy for the property type is part of its decision.

The distinction that matters for the rest of this page is the first one. If the reason is credit and debt load, the renewal is a symptom. Fixing the symptom with a more expensive mortgage does not touch the cause.

What happens if I don’t renew my mortgage, or can’t?

The balance becomes due at the end of the term, and a lender you cannot pay out will, in time, enforce. But “in time” is not “the next day”, and what the lender must do first is set by law.

When a term ends and you have neither renewed nor paid out, the whole balance is payable. Ask whether the lender will offer a new term or an extension, on what conditions, and at what total cost. Not renewing is not itself a default. Failing to pay the balance when the term ends is, and from that day the same clock runs as if you had missed a payment.

If the lender does move to enforce, it does so through a power of sale, and it cannot do that overnight. The law sets minimums: under a mortgage that contains a power of sale, which nearly all do, a Notice of Sale cannot be given until the default has lasted at least fifteen days, and no sale can be made until at least thirty-five days after the notice is given. Those floors, and every step from the first missed payment to the day the house is sold, are on Behind on your mortgage in Ontario: what happens next, and what you can do at each stage. This page stays with the decision at renewal, while the enforcement road is still a road you can avoid.

The payment I cannot afford: the renewal wall in numbers

Put a number on the renewal before you decide anything, because the payment and the full household budget decide which route is workable.

Here is an illustrative household with a $650,000 mortgage balance and twenty years of amortization remaining. Compare that same balance and amortization at each rate below. The first row is a low-rate comparison, not a reconstruction of an earlier payment. The household also has $45,000 of card debt, modelled at 20.99 per cent interest with a minimum payment of three per cent of the balance.

Read the table twice. First, compare the illustrated mortgage payments: the increase is about $625 at 3.94 per cent, about $1,379 at 6.09 per cent, about $1,343 at 5.99 per cent and about $2,497 at nine per cent. These increases use the unrounded calculations. Then look at the $1,350 already leaving the household each month for other debt, including about $787 of interest. For an insolvent household, a proposal may change that payment, but its amount depends on income, assets and the proposal terms. Put the proposed payment back into the complete budget before deciding whether the renewed mortgage fits.

These are illustrative inputs, not current offers: a $650,000 balance, twenty years of remaining amortization, monthly payments, and the rates shown. The fixed-rate calculation uses semi-annual compounding. Fees are not included, so the nine per cent row is not an all-in borrowing-cost quote. The discounted illustration increases the payment by about nineteen per cent. Replace the rates and fees with the written offers available to you.

Should I go to a B lender or a private lender?

A B lender can be the right bridge for a year or two if the problem is temporary and the cost is honestly counted. A private lender can buy time, but for a household that is already stretched it can also increase the cost without fixing the cause.

Canada has an alternative mortgage market for borrowers who do not fit a major bank’s current rules, and mortgage brokers arrange those loans. The mortgages guide on this site says so plainly and does not quote rates because they change. What it does say, and what I will say again here, is that those mortgages come with higher interest, lower loan-to-value limits and additional fees, and that they are meant as a bridge while your position improves and your credit is rebuilt. As a bridge, on a plan, they can work.

Here is what the plan has to survive: the interest, every fee, the amount due at maturity, and the default charges if a payment is missed. Ask for those figures before you sign. The power-of-sale guide explains the enforcement questions; the offer in front of you supplies the numbers for your comparison.

One term to read before you sign is the right to renew. Private mortgages can give the borrower no right to renew at all: any extension at the end of the term may be at the lender’s option, for a short period, on payment of a further fee, and the lender can decline. Check the written term and plan for the balance becoming due.

Ask yourself one question before any private loan: what will be different at the end of the term that lets me pay this out? Write down the expected source of repayment and the cost if it arrives late. Keeping the house for another year is a result to price, not an exit plan by itself.

Can I renew my mortgage with bad credit?

Ask your own lender and a broker what can be offered on your actual file. Compare the payment, fees and repayment plan. If other debts are the reason the household no longer qualifies, assess those debts before adding a more expensive mortgage.

With your existing lender, ask about a renewal on the same balance and what information it needs to decide. Whether it renews is its own decision on its ordinary terms. Get the answer in writing before assuming that a different lender is your only route.

If the answer is no, compare any alternative offer with the same full-cost calculation. A new mortgage does not itself deal with the other debt. If that is the $45,000 in the table, an insolvency assessment can show which remedies, if any, are available. The credit page explains what a filing means for the credit file without promising a recovery date.

One sentence on borrowing from family to get through the renewal, because it is another commitment to count: a parent’s money spent bridging a payment you cannot carry is the parent’s money gone, and what that loan becomes if you later have to file is a question with an answer you should hear first. The whole of that conversation, and the marriage conversation beside it, is on the house-poor page of this series.

Fix the other debt so the mortgage fits

Keeping the mortgage requires a budget that supports its payments. The debts that are squeezing it out may be unsecured debts that a consumer proposal can address. A proposal does not change the need to keep paying the mortgage, and renewal remains the lender’s decision.

Who these remedies are for. Everything on this page about a consumer proposal or a bankruptcy applies to a person who is genuinely insolvent under the Bankruptcy and Insolvency Act: someone who cannot pay their debts as they come due, or who owns less than they owe. That is not a formality. It is the first thing I assess, and the law requires me to. If you are not insolvent, these are not your remedies, and arranging your affairs to look insolvent when you are not is the worst thing you can do: the Act lets a trustee reverse payments and transfers made before a filing, the Official Receiver examines a bankrupt under oath about the causes of the bankruptcy and what happened to the property, and a discharge can be opposed on exactly those facts. I am bound by my Code not to assist anyone down that road, and I will not.

This is another part of the calculation, because the renewal letter directs your attention to one payment.

A consumer proposal deals with unsecured debt: the cards, the lines of credit, the unsecured loans, the tax bill. It does not touch a mortgage you keep paying. The protection is exact and it has an edge: while the proposal is running, nobody may end or change the mortgage, call it, or accelerate it only because you filed; but nothing in that rule obliges a lender to advance new money or to renew, and a renewal at term end is the lender’s own decision on its ordinary terms. Compare the proposal payment with the unsecured payments it would replace, then include that amount and all other costs in the household budget.

Look at the table again. A household paying $1,350 a month on card debt and $3,907 on the renewed mortgage needs to test that combined payment against its actual income and other costs. If a proposal is available, compare its payment with the card minimums and rerun the budget. The table identifies a question to assess; it does not establish that this household is insolvent or can afford the result.

What a proposal does to a renewal that falls inside its term, and what lenders actually do in practice, is the ground of Mortgages and a Consumer Proposal: Renewing, Refinancing, and Buying a Home, which this page does not repeat. In law there is no difference between a renewal that falls inside the proposal and one after it is completed; the only difference is the lender’s view of your file, which is not a legal question. The Consumer Proposal Resource Centre explains what a proposal is and how it works, and the Consumer Proposal Calculator will show you what a proposal on your unsecured balance would cost each month.

When the debt is too big for a consumer proposal

A consumer proposal has a ceiling, and a second property’s mortgage counts toward it. If you are over the ceiling, the answer is not “no proposal”. It is a different kind of proposal.

A consumer proposal is available where your debts, leaving out debts secured by the home you live in, are within a set limit. Debt secured by your principal residence is left out of that count. A mortgage on any other property, a rental, an investment condo, a cottage, is not, and for the owner of a second property that mortgage alone can carry them over the line. The whole balance of that mortgage counts, not only any shortfall. Sell or surrender the property before you file and only the shortfall remains as a debt, so only the shortfall counts. File while you still own it and the whole mortgage is in the count. The order in which you do things decides which door is open, which is a reason to talk to a trustee before you do either.

Over the limit, the route is a Division 1 proposal, which is the same idea with different mechanics and different votes, and it is explained in plain terms on Division 1 Proposals in Plain Terms. The reason to know this now, at renewal, is that the ceiling decides which door you use, and the door decides the timeline. Do not let a broker tell you a proposal is not available to you because you own two properties. If you are insolvent, one of the two is; it may just be the other one.

If the second property is the thing that no longer pays for itself, the piece in this series on the underwater condo is where the arithmetic of that decision lives. If the question is whether to sell the home you live in before or after you deal with the debt, the selling piece answers it. And if what you are doing is paying six thousand a month to keep a house you can no longer carry, there is a page for exactly that.

Common questions

What happens if you don’t qualify for mortgage renewal? The balance comes due at term end. Your existing lender may still renew at a higher rate rather than refuse outright; ask in writing. If it will not, ask a broker what alternatives are available and compare their full cost. If the reason you do not qualify is unsecured debt, a proper assessment of that debt may show whether dealing with it changes the answer before more expensive mortgage debt is added.

What happens if you can’t renew your mortgage? The balance is due when the term ends. Not renewing is not itself a default; failing to pay that balance is. The minimum steps before a lender can sell are on Behind on your mortgage in Ontario: what happens next, and what you can do at each stage. Ask about the lender’s intentions before the maturity date.

Does a consumer proposal affect mortgage renewal? While the proposal is running, nobody may end or change the mortgage, call it, or accelerate it only because you filed. At renewal, the lender applies its own policy. Whether it renews is its own decision on its ordinary terms. The full answer, lender type by lender type, is on Mortgages and a Consumer Proposal: Renewing, Refinancing, and Buying a Home.

How much will my mortgage payment increase at renewal? Use the written rate offer, your balance and remaining amortization. The table compares the same $650,000 balance over twenty years at hypothetical rates. It shows the effect of the rate alone; it does not reconstruct the payment you made five years ago or quote an offer available today.

Can you renew your mortgage with bad credit? Ask your lender and a broker what can be offered on your actual file, then compare the full cost and payment. The linked mortgages and credit guides explain the questions to ask; this page cannot promise an approval.

The analysis behind this page

The rules on what a lender must and need not do at renewal, and on what a consumer proposal does to a mortgage you keep paying, are set out on Mortgages and a Consumer Proposal: Renewing, Refinancing, and Buying a Home. The power-of-sale guide covers the enforcement questions. All rates and balances in this table are hypothetical inputs, with the calculation method stated above; they are not current market quotations. This page is general information about Ontario law and not advice about your situation.

Can’t find your answer here?

This site is built to answer these questions properly, and most of the time it will. If yours is not here, send it to me. I read them myself, and I answer them personally.

If what you want is to understand your next steps, I can help you with that directly in Ontario. The first thing I will do is assess whether you are insolvent under the Act; if you are not, I will say so. The other Licensed Insolvency Trustees I work with can assist across the rest of Canada.

Paul Franchi, Licensed Insolvency Trustee