What Happens If Your Mortgage Renewal Is Denied?

When you secure a mortgage with a lender, you agree to borrow a certain amount of money (the principal) and repay it over a specified period of time (your amortization period), typically 25 or 30 years. You are contractually obligated to make payments at a specified interest rate for a defined time, known as the term. Mortgage terms typically range from one to 10 years. When your term is up, unless you pay the outstanding balance in full, you need to renew your mortgage.

Mortgage lenders are required to send you a mortgage renewal offer at least 21 days before the end of your term; however, many offer the option to renew up to 120 days early. You can accept the offer as is, negotiate a better interest rate, or change the terms of your mortgage contract, such as requesting a longer amortization period. You can also decide to switch lenders without paying any penalties.

If you have a strong credit history, manageable debt levels and a solid income, your mortgage renewal should proceed without hitting any snags. However, there are instances where your lender may deny your mortgage renewal.

Related: How To Renew Your Mortgage

These are the most common reasons your mortgage may be denied:

• You missed mortgage payments: When you take out a mortgage, you are contractually obligated to make mortgage payments according to your payment schedule. If you miss too many mortgage payments, your lender may not renew your loan because you are considered unreliable or too high a risk.
• You have a poor credit score: If your credit score has been negatively affected by missing too many other loan or bill payments or racking up a lot of debt, that may be a red flag for your lender because it shows you might not be able to handle your debt obligations.
• Your income has dropped significantly: When you first apply for a mortgage, your lender will consider your income when determining how big a loan you qualify for. If your income drastically changes during your mortgage term due to lost employment, your lender may determine you can no longer afford your current mortgage.
• You’ve taken on too much debt: Your lender may look at your debt-to-income ratio, and if you’ve accumulated too much debt or you’re carrying debt too close to your credit limits, your lender may decide that you’re over-extended and run the risk of defaulting on your mortgage.

If your lender denies your mortgage renewal, you still have options.

• Speak to your current lender: It’s important to ask your lender why you were denied your mortgage renewal. If it was because of affordability, for example, meaning your mortgage payments are too high for your income, you may be able to extend your amortization to reduce your payments. You can also ask if you can do anything to strengthen your application, such as adding a mortgage co-signer or guarantor.
• Work with a mortgage broker: A mortgage broker has access to multiple lenders and knows the ones that may be more amenable to a less-than-stellar mortgage application. A mortgage broker will negotiate on your behalf and help you find the best mortgage for your situation. (Keep in mind that under current rules, if you switch your uninsured mortgage to a new lender, you’ll have to pass the mortgage stress test, which can be another barrier to getting your mortgage approved. (Insured mortgages are exempt from this requirement.) However, as of November 21, 2024, uninsured mortgage holders switching lenders for the same amortization and loan amount will no longer need to pass the stress test.)
• Apply with an alternative lender: Lenders use different criteria for assessing a borrower’s risk and creditworthiness. Just because you are seen as high-risk by your current lender does not mean that all lenders will reject your application. Alternative lenders, such as credit unions, trust companies or B-lenders, may accept a lower credit score or a shaky credit history. You may also want to consider a private mortgage lender; however, you’ll likely pay a higher interest rate, which may only exacerbate any debt management issues.
• Sell your home: If you’re chronically overextended with your mortgage and other debt, it may be time to consider selling your home and downsizing to a more affordable alternative.

To reduce the risk of having your mortgage renewal denied, it’s a good idea to check your credit history long before your renewal date. If you need to clean up your credit score by paying off or consolidating some debt, for example, or if there are errors on your report that you can dispute, you have time to do some before renewing your mortgage.

Perhaps more importantly, if you anticipate issues with your mortgage payments during your mortgage term, it’s critical to contact your lender before you miss any payments. Your lender may offer some mortgage relief options, such as “skip a payment” for a short-term solution or a mortgage deferral, which allows you to delay your mortgage payments for longer.

Renewing your mortgage may be stressful, especially if interest rates are significantly higher than when you first secured your loan. Lenders don’t often deny a mortgage renewal, but if it happens to you, you may still be able to secure another mortgage. The better plan is to ensure your financial house is in order before your current term expires: Make your payments on time, don’t take on too much debt and try not to make any big job changes before your mortgage renewal.