What to Do If Your Mortgage Renewal Gets Denied

When your mortgage matures, it indicates the end of the current term of your loan. When your term is shorter than your amortization period, you have to go through the renewal process several times until you pay off the entire loan.

Before your term expires, your lender will send you a renewal offer. The offer includes a new term, and a new rate.

The renewal process is also an opportunity to find a new lender with more favourable rates and terms. When your mortgage is up for renewal, it can mean re-qualifying for your mortgage.

Let’s go through different scenarios to explain what you can do if your mortgage renewal is denied.

Why Your Current Lender May Deny Your Mortgage Renewal

One of the advantages of sticking to your current lender is that they typically don’t have to re-qualify you. However, your lender always has the ability to request details about your current financial situation before approving your renewal. The lender may verify that your debt to income ratios are still reasonable and that you still have the ability to make your payments. Though this practice is uncommon if your mortgage has been paid as agreed.

Why A New Lender May Deny Your Mortgage Renewal

If your current lender denies your renewal, you can look around for a new lender. You need to submit a new mortgage application and re-qualify for the mortgage.

Just as when you got your original mortgage, the lender will confirm income, credit, and mortgage repayment history. If any of these items do not fit their guidelines you may be denied by that lender.

What to Do When You Are Denied

If you are struggling to find a lender to renew your mortgage, you can look at alternative options with the help of a mortgage broker.

First, if your original lender was an “A” lender, then you can approach a “B” lender about your situation. “A” lenders are usually banks or credit unions, while “B” lenders are trust companies and equity lenders. “B” lenders are more likely to accept your mortgage renewal since they work with individuals with low credit scores and people with more debt than an “A” lender would handle. For this to be an option you will need at least 20% equity built up in your home. It is important to work with your mortgage broker to find the most suitable renewal.

-Jamie Arthurs

Your Guide to Renewing Your Mortgage with a Mortgage Broker

When you qualify for your first mortgage, you may feel like you can rest easy. After all, the mortgage is already in place. Be careful, your mortgage journey does not end there. Eventually, your mortgage term will come to an end. Whether it’s one, five, or ten years, you have to renew your mortgage at the end of your current term.

The Mortgage Renewal Process

A mortgage renewal is the instance when your present-day payment term matures, and you have to sign on for a new term. It is also an opportunity for you to renegotiate the terms of your mortgage. The conditions could include the length of your next term, your interest rate, and/or your lender.

Normally your current lender will send you a renewal letter, hoping you are lazy and will just sign it without double checking your options. It is important to ensure that they are offering you a competitive term for your mortgage renewal.

As the mortgage renewal draws nearer, your lender might send you an email or mail. The message is a renewal statement that usually arrives three weeks before the end of your term. It will include details such as your current balance, the amount paid, payment frequency, and a renewal form for you to sign.

When you sign the form, you are engaging in a new mortgage contract. What you have paid off has already been deducted. For example, if you took a mortgage for $500,000 and your balance is $350,000, your new mortgage is worth $350,000.

Why Signing Could Hurt You

Most homeowners renew their mortgage with their current lender. Unfortunately, the majority of homeowners accept the terms presented in their renewal without negotiations. After all, signing the document and sending it back is more comfortable than re-negotiating. Since most lenders expect their clients to accept the terms and retain their current lenders, they withhold the best offers. In the end, the lenders are in business to make money.

Switching Lenders

If you are planning to switch lenders, it’s because you want to save money in the long run.

An experienced mortgage broker will know which lenders will cover the cost of switching for you. Typically, there is no cost, however you do have to prove your income and collect your documents so that the new lender can verify the information.

If you still have a long time left on your amortization schedule, you can save money by getting a lower interest rate and keeping your payment the same. Consequently, you will pay off your mortgage faster.

A mortgage broker can help you look for new lenders and get a good deal. Remember to ask the mortgage broker or the new lender if they are willing to absorb the renewal costs for you before committing.

Early Renewal

Some mortgages offer an early renewal option. This option is convenient when you a few months before the maturity of your mortgage. You can lock in interest rates before mortgage renewal. Even if the rates change before renewal, you will use the locked rate. Other renewals allow a break on prepayment, where you can make a lump sum payment to the principal without any charges.

Mortgage Renewal Problems

If you made all your payments in time, you should experience no problems during mortgage renewal. However, If your credit rating drops or if your financial situation changes, you may be in the unfortunate situation where your current lender will not renew for you. In this case time is of the essence, and it is important to contact a professional mortgage broker as soon as possible to figure out your options.

Mortgage Renewal in Edmonton

If you are planning to renew your mortgage, seek the help of a mortgage broker. You will receive expert advice and have an easier time deciding what is best for you. For more information on mortgage renewal in Edmonton, contact Dominion Lending Centres today.

-Jamie Arthurs

6 Things all Co-signors should consider

Co-signing on a loan may seem like an easy way to help a loved one (child, family member, friend, etc. ) live out their dream of owning a home. In today’s market conditions, a co-signor can offer a solution to overcome the high market prices and stress testing measure. For example, if you have a damaged credit score, not enough income, or another reason that a lender will not approve the mortgage loan, a co-signor addition on the loan can satisfy the lenders needs and lessen the risk associated with the loan. However, as a co-signor there are considerations.

1. If you act as a co-signor or guarantor, you are entrusting your entire credit history to the borrowers. What this mean is that late payments on the loan will not only hurt them, but it will also impact you.
2. Understand your current situations—taxes, legal, and estate. Co-signing is a large obligation that could harm you financially if the primary borrowers cannot pay.
3. Try to understand, upfront, how many years the co-borrower agreement will be in place and know if you can make changes to things mid-term if the borrower becomes able to assume the original mortgage on their own.
4. Consider the implications this will have regarding your personal income taxes. You may have an obligation to pay capital gains taxes and we would highly recommend talking to an accountant prior to signing off.
5. Co-signors should seek independent legal advice to ensure they fully understand their rights, obligations and the implications. A lawyer can lay it out clearly for you as well as help to point out any things you should take note of.
6. Carefully think about the character and stability of the people that you are being asked to co-sign for. Do you trust them? Are you aware of their financial situation to some degree? Are you willing to put yourself at risk potentially to take on this responsibility? Another consideration is to think about your finances down the road and determine how much flexibility will be needed for yourself and your family too! If you have plans of your own that will require a loan, refinancing your home, etc. being a co-signor can have an impact.

Co-signing for a loan is a large responsibility but when it is set-up correctly and all options are considered, it can be an excellent way to help a family member, child, or friend reach their dream of homeownership. If you are considering being a co-signor or wondering if you will require a co-signor on your mortgage, reach out to a Dominion Lending Centres mortgage professional. We are always happy to answer any questions and guide you through processes like this.

How to Verify Your Down Payment When Buying a Home

Saving for a down payment is one of the biggest challenges facing people wanting to buy their first home.
To fulfill the conditions of your mortgage approval, it’s all about what you can prove (hard to believe – but some people have lied in the past – horrors!).
Documentation of down payment is required by all lenders to protect against fraud and to prove that you are not borrowing your down payment, which changes your lending ratios and potential your mortgage approval.

DOCUMENTATION REQUIRED BY THE LENDER TO VERIFY YOUR DOWN PAYMENT

This is a government anti-money laundering requirement and protects the lender against fraud.

1. Personal Savings/Investments: Your lender needs to see a minimum of 3 months’ history of where the money for your down payment is coming from including your: savings, Tax Free Savings Account (TFSA) or investment money.

• Regularly deposit all your cash in the bank, don’t squirrel your money away at home. Lenders don’t like to hear that you’ve just deposited $10,000 cash that has been sitting under your mattress. Your bank statements will need to clearly show your name and your account number.
• Any large deposits outside of “normal” will need to be explained (i.e. tax return, bonus from work, sale of a large ticket item). If you have transferred money from once account to another you will need to show a record of the money leaving one account and arriving in the other. Lenders want to see a paper trail of where your down payment is coming from and how it got into your account.

2. Gifted Down Payment: In some expensive real estate markets like Metro Vancouver & Toronto, the bank of Mom & Dad help 20% of first time home buyers. You can use these gifted funds for your down payment if you have a signed gift letter from your family member that states the down payment is a true gift and no repayment is required.

• Gifted down payments are only acceptable from immediate family members: parents, grandparents & siblings.
• Be prepared to show the gifted funds have been deposited in your account 15 days prior to closing. The lender may want to see a transaction record. i.e. $30,000 from Bank of Mom & Dad’s account transferred to yours and a record of the $30,000 landing in your account. Bank documents will need to show the account number and names for the giver and receiver of the funds. Contact me for a sample gift letter.

3. Using your RRSP: If you’re a First Time Home Buyer, you may qualify to use up to $35,000 from your Registered Retirement Savings Plan (RRSP) for your down payment.

• Home Buyers Plan (HBP): Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home. The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.
• If you buy a qualifying home together with your spouse or other individuals, each of you can withdraw up to $35,000.
• You must repay all withdrawals to your RRSP’s 15 years. Generally, you will have to repay an amount to your RRSP each year until you have repaid the entire amount you withdrew. If you do not repay the amount due for a year (i.e. $35,000/15 years = $2,333.33 per year), it will be added to your income for that year.
• Verifying your down payment from your RRSP, you will need to prove the funds show a 3-month RRSP history via your account statements which need to include your name and account number. Funds must be sitting in your account for 90 days to use them for HBP.

4. Proceeds from Selling Your Existing Home: If your down payment is coming from the proceeds of selling your currently home, then you will need to show your lender an accepted offer of Purchase and Sale (with all subjects removed) between you and the buyer of your current home.

• If you have an existing mortgage on your current home, you will need to provide an up-to-date mortgage statement.

5. Money from Outside Canada: Using funds from outside of Canada is acceptable, but you need to have the money on deposit in a Canadian financial institution at least 30 days before your closing date.  Most lenders will also want to see that you have enough funds to cover Property Transfer Tax (in BC) PLUS 1.5% of the purchase price available in your account to cover your closing costs (i.e. legal, appraisal, home inspection, taxes, etc.).

• Property Transfer Tax (PTT) All buyers pay Property Transfer Tax (except first-time buyers purchasing under $500,000 and New Builds under $750,000). This is a cash expense, in addition to your down payment.
  Property Transfer Tax (PTT) cannot be financed into the mortgage

Buying a home for the first time can be stressful, therefore being prepared with the right documentation for your down payment and closing costs can make the process much easier.
Mortgages are complicated, but they don’t have to be. Contact a Dominion Lending Centres mortgage professional near you.

People who are self-employed face unique challenges in getting approved for mortgages. One reason for this is because most self-employed individuals minimize their reported income for tax purposes. This can be great for saving money, but not so great when applying for a self-employed mortgage, as most lenders use a borrower’s income as a prime indicator of an applicant’s ability to repay their loan. Fortunately, there are a few steps you can take to improve your chances of getting approved for a self-employed mortgage. Here are three ways to make your mortgage application more attractive to banks, credit unions, and other prime lenders.

1. Review Your Credit History

Since prime lenders reserve their best interest rates and loan products for borrowers with near-perfect credit histories, it’s important to review your credit report before applying for a self-employed mortgage. If you have blemishes on your credit report, such as defaults or judgments, you’ll need to resolve them. You should also correct any errors that you find on your file. After reviewing your credit report, you may find that you’ll need to improve your credit score to be approved for a self employment mortgage. You can do this by paying your bills on time, eliminating any outstanding credit card balances, and clearing up any debts that have gone into collection.

2. Lower Your Debt-to-Income Ratio

Lenders use your debt-to-income ratio to assess your ability to repay your self-employed mortgage. The higher your debt-to-income ratio, the lower your ability to pay your mortgage is determined to be. Before seeking a self-employed mortgage, you’ll want to ensure that your debt to income ratio is as low as possible. If you have taken out several personal loans, paying some of them down may help you get approved for home financing.

3. Get Help from a Mortgage Specialist

A mortgage specialist can give you valuable advice and suggest alternative lending solutions to help you get approved for a self-employed mortgage. Mortgage specialists can also provide ongoing support by reviewing your business finances several times a year and determining whether your home loan still works for you.

Getting approved for a mortgage while being self-employed can be difficult, but it’s not impossible. Contact a mortgage specialist today to discuss your financial goals and develop a plan to obtain a self-employed mortgage.

As a self-employed person myself, I was happy to hear that CMHC is willing to make some changes that will make it easier for us to qualify for a mortgage.
In an announcement on July 19, 2018, the CMHC has said “Self-employed Canadians represent a significant part of the Canadian workforce. These policy changes respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates.” — Romy Bowers, Chief Commercial Officer, Canada Mortgage and Housing Corporation. These policy changes are to take effect Oct. 1, 2018.

Traditionally self-employed borrowers will write as many expenses as they can to minimize the income tax they pay each year. While this is a good tax-saving technique it means that often a realistic annual income can not be established high enough to meet mortgage qualification guidelines.
Plain speak, we don’t look good on paper.

Normally CMHC wants to see two years established business history to be able to determine an average income. But the agency said it will now make allowances for people who acquire existing businesses, can demonstrate sufficient cash reserves, who will be expecting predictable earnings and have previous training and education.
Take for example a borrower that has been an interior designer with a firm for the past eight years and in the same industry for the past 30 years, but just struck out on his own last year. His main work contract is with the firm he used to work for, but now he has the ability to pick up additional contracts from the industry in which he has vast connections.
Where previously he would have had to entertain a mortgage with an interest rate at least 1% higher than the best on the market and have to pay a fee, now he would be able to meet insurance requirements and get preferred rates.

The other change that CMHC has made is to allow for more flexible documentation of income and the ability to look at Statements of Business Professional Activity from a sole-proprietor’s income tax submission to support Add Backs of certain write-offs to support a grossing-up of income. Basically, recognizing that many write-offs are simply for tax-saving purposes and are not a reduction of actual income. This could mean a significant increase in income and buying power.

It is refreshing after years of government claw-backs and conservative policy changes to finally see the swing back in the other direction. Self-employed Canadians have taken on the burden of an often fluctuating income and responsible income tax management all for the ability to work for themselves. These measures will help them with the reward of being able to own their own home as well.

-Kristen Wollard DLC Mortgage Agent