What happens if you don’t renew your mortgage?

When your mortgage term is close to expiration and the principal is still not paid off, you must renew the mortgage. You can either renew it with your current lender or move it to a different one.

What happens if you don’t renew your mortgage with your lender? There are two main reasons why this could happen.

Your lender declines to renew your mortgage

Your lender is required to notify you about renewing your mortgage at least 21 days before the term expires. If you are in good standing with your lender – meaning you make your mortgage payments on time, keep a good credit score, remain employed and maintain other positive financial habits – the lender will most likely renew the mortgage for another term. Some lenders even auto-renew their clients based on these criteria.

However, if you frequently miss your mortgage payments, lost your job or have a low credit score, the lender may choose to decline the renewal. They must notify you of their decision at least 21 days prior to the expiry of your term.

When you know your mortgage is up for renewal, it’s best to contact your lender a few months ahead of time to determine whether or not they will renew your mortgage. If you know that you will be late making your payments due to a drastic change to your financial status – such as losing your job, suffering from a long-term illness or getting a divorce – it’s best to let your lender know about this in advance.

If the lender declines to renew your mortgage, you will either have to approach another lending institution or consider tapping into the private lending market. It’s important to do this quickly, as you do not want to face foreclosure and lose the equity you have in your home.

You decline to renew your mortgage with your lender

When you receive notice that your mortgage is up for renewal, the lender will send you a statement containing the following information:

• Your remaining principal
• Your current interest rate
• The frequency of your payments
• The length of your mortgage term
• Information about any applicable fees or charges
• A renewal contract (if the lender decides to renew your mortgage)

As previously mentioned, you will receive this statement at least 21 days before your term matures. You can easily sign the enclosed renewal contract and continue with your current lender, but you may not want to do so.

Throughout the term of your mortgage, your financial situation may change. Perhaps you started or ended a job, expanded your family, or decided to sell your home. As a result, your current mortgage may no longer be suitable for you. This forces many homeowners to switch lenders or refinance their mortgages.

If you need a mortgage that is more in line with your current needs, take plenty of time to scan the market and compare mortgages offered by your lender’s competitors. Take note of these mortgage products and schedule a meeting with your mortgage broker, who can show you other products, answer your questions and negotiate better rates on your behalf.

Once you’ve done your research, meet with your lender and present them with your findings. The more thorough your research, the easier it will be to negotiate. In some cases, the lender may choose to match a competitor’s rate and term, making it easier for you to renew with them. If they do not, you are free to take your business elsewhere.

Keep in mind that if you decide to switch lenders, you will have to re-apply for your mortgage, as the new lender’s lending criteria may differ from those of your previous lender. If you have an insured mortgage, lenders may also administer a mortgage stress test, where you are assessed at your rate + 2% or the average 5-year posted rate — whichever is greater.

If you know about what happens if you don’t renew your mortgage ahead of time, you will be more prepared to approach the situation and seek alternatives. Be sure to contact your lender or mortgage broker if you have any questions or concerns about the renewal process.