Applying for a mortgage renewal isn’t a walk in the park and doesn’t entail automatic approval. Renewing your mortgage with your current lender, while you’ve been “working” with them all these years, is still not guaranteed.
Transferring to a new lender is an option, but you still have to go through the rigorous process of being approved. Lenders will still evaluate your current financial situation and the cause of rejection is going to depend on the lender.
There are, of course, standards to follow. But each lender will have their own guidelines and procedures when rejecting your mortgage renewal application. Bottom line: don’t give them a reason for rejection.
Why your renewal may be declined by your current lender
A mortgage renewal application may be declined because of several factors. Here are some reasons why your application for a mortgage renewal may have been declined:
Missing payments on due dates
Lenders will reject a mortgage renewal application if a homeowner misses monthly payments on their mortgage. Lenders track previous payments and review your mortgage history.
Missing due dates is the most common reason why a lender will reject a mortgage renewal application. If you’re missing out on payments, lenders see this as a sign of defaulting and can greatly affect their decision to renew or decline your renewal.
Missing mortgage payments will also have a negative effect on your credit report. This gives lenders the impression that you’re having financial troubles and this can lead to a declined application.
Having a poor credit report
Banks and lenders will always check your financial status. They’ll review your credit history, credit score, payment patterns and more. Checking your credit will give them an idea of how you handle debt and your current debt load.
Lenders will also check if you’re on the verge of bankruptcy in the near future. Having bad credit history goes hand in hand with a poor credit score. Your credit report dictates your capability of borrowing and shows your repayment history.
Too much debt
Banks and lenders will always check how much debt you are in. The amount you owe will tremendously affect your capabilities to pay and meet your financial obligations.
Lenders need to understand the psychology of how you tackle your financial problems. If you’re in too much debt, lenders may perceive that you’re having some sort of a financial-related crisis.
Having too much debt is telling lenders you may have a higher chance of defaulting on your payments and lenders don’t like to see that.
Change in employment or income
If you’re trying to borrow money, lenders will check your source of income. A steady source or stream of income usually comes from employment. A change in employment can either be a good thing or a bad thing.
If you change employment because of a promotion and increasing your income can be a good thing. There’s an increase in your source of income, so your chances of being approved for a mortgage renewal application increases as well.
On the contrary, changing employers don’t always translate to a higher salary. Sometimes you have to change employers because you need a more steady source of income. Having a lower income can affect the decision of your current lender and can lead to rejection of your mortgage renewal application.
Reasons why a mortgage renewal is declined by a new lender
Homeowners can choose to switch to a new lender if they think that this will result in a better and lower rate as compared to what their current lender is offering. Remember, that’s not always the case. Sometimes you choose to go to a new lender simply because you were declined by your current lender.
Different lenders tend to have different offers. That’s their way of attracting possible clients. When you become eligible for refinancing, it’s okay to shop around and look for potential lenders that’ll give you other possible options.
Once you decide to switch to a different lender, they’ll check your financial status. They’ll also check your credit history to see if you have a history of non-payment or late payments on your mortgage.
How to qualify for a mortgage renewal
There are things to avoid, but there are also a few things that you can do, to increase your chances of approval on your renewal. Here are some positive steps to apply:
- Pay your mortgage on the due date and full payment. Don’t miss your payment when it’s due and make sure that you settle the full amount.
- Don’t change employment hastily. Doing so may affect your salary. Lenders will always check the flow of your income and see if it’s enough to cover all of your financial obligations. A change in income can affect your mortgage renewal application negatively.
- Be consistent and maintain a good credit standing. Always manage your finances and you will achieve good credit.
- Consult a mortgage broker a few months before your renewal comes due.
Having difficulties? Seek professional advice.
Remember, everything depends on you. So be sure to do whatever you can to maintain your financial status. Always make the necessary adjustments as needed. If you can, improve. Daisy Raouph, an experienced mortgage broker and financial advisor with over 30 years of experience in financial services. Her team of reliable and trustworthy brokers will walk you through the steps of renewing your mortgage. Schedule an appointment now and work your way towards financial security.