What happens if your mortgage renewal is denied?

Of course, banks don’t go around arbitrarily declining mortgage renewals. In most cases, if you’ve been diligently making your mortgage payments in full and on time, they want to keep your business. But when lenders have reason to believe that your risk levels have changed—in a bad way. For example, you’ve missed payments, had a significant change in income, debt or credit score, or they think you won’t be able to afford your monthly carrying costs due to interest rate hikes—your mortgage renewal could be declined.

While still quite rare—more than 99.8% of residential mortgage holders are currently in good standing according to the Canadian Bankers Association—there are fears that renewal declines could start to become more commonplace. That’s because the borrowers who took out mortgages in 2021 and early 2022—when house prices were close to their peak and interest rates were very low—are facing “rate shock” renewals with median payment increases of 22% in 2024, nearly 25% in 2025 and more than 30% in 2026, the Bank of Canada (BoC) estimates. Moreover, according to a survey for Mortgage Professionals Canada, nearly a quarter (23%) of mortgage holders say even a small rate increase will cause them to have trouble making payments.

So, what can you do if your mortgage renewal is declined? Here are some options:

Speak to your current lender

It’s important to find out why you were declined. There might be an easy fix. For example, if the reason is a drop in your credit score but you’ve been making all your debt payments on time, check your credit reports for any errors. If your credit score has, in fact, taken a hit, ask your lender if there are any conditions under which it would reconsider and approve the renewal, such as getting a co-signer who has good credit.

Refer to the Canadian Mortgage Charter

Anticipating that borrowers may need support to afford their mortgages when renewing at higher interest rates, the federal government recently collaborated with financial institutions to develop the Canadian Mortgage Charter. The charter outlines the types of relief you can expect from your bank that can help you be approved for renewal, such as a temporary extension in amortization to lower your monthly mortgage payments, the ability to make lump-sum payments to avoid negative amortization, and waiving any fees or penalties that would normally be attached to such provisions. While the charter isn’t law—meaning banks don’t have to comply—the government is strongly encouraging them to do so and says it will closely monitor their implementation of the relief measures. If your lender won’t play ball, you can make a complaint on the Financial Consumer Agency of Canada (FCAC) website.

Reach out to other banks

Another measure under the Canadian Mortgage Charter is that Canadian banks and other federally regulated financial institutions are no longer required to apply the stress test if you switch lenders at renewal and have a Canada Mortgage and Housing Corporation-insured or high-ratio mortgage. That means you can qualify with a new lender based on market interest rates, rather than the minimum qualifying rate (which adds a buffer of 2%, or uses a floor rate of 5.25%, whichever is higher). Theoretically, this should improve your chances of finding another bank willing to refinance your mortgage if your current lender declines renewal. Of course, whatever reason is behind your current lender’s reluctance to renew your contract could also warn off other banks.

This table compares mortgage interest rates from providers in Canada:

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Consult a mortgage broker

Mortgage brokers know which banks and other lenders are most likely to refinance a mortgage for borrowers in your situation. And they will negotiate on your behalf, which can save you time, stress and money. Plus, brokers can suggest ways to present yourself to new lenders in the best light—for example, paying off or restructuring outstanding credit if your total debt service ratio is too high, or getting a co-signer if necessary.

Approach alternative or private lenders

If you or your mortgage broker can’t find a large bank or credit union that will refinance your mortgage, smaller financial institutions, trust companies and mortgage investment companies—referred to as B lenders—are your next best option. They’re often more willing than A lenders to work with borrowers who have more debt or lower credit scores. If you can’t get approved by a B lender, you can try a private lender—but it’ll cost you. Private lenders charge the highest interest rates and many aren’t licensed, so there’s more risk involved. 

Sell your home

While not ideal, selling may be your best option when you can’t renew or refinance your mortgage. If you don’t take action to sell so you can pay off your mortgage balance, your current lender can repossess your home and rent it out or sell it without your involvement. (Note that under the Canadian Mortgage Charter, banks are expected to waive any prepayment penalties when owners sell a primary residence because they are struggling financially.)

Mortgage up for renewal?

If your mortgage is up for renewal in the coming year, don’t take a wait-and-see approach. Be proactive by checking your credit score and debt-to-income ratio, and using a mortgage calculator to determine what your new carrying costs may be. With enough advance notice, you can pinpoint any potential pitfalls and take steps to correct them, so your lender won’t have any reason to decline your mortgage renewal.

Read more about mortgages:

• The best 5-year fixed mortgage rates in Canada
• Mortgage renewal calculator
• 6 things to consider before borrowing from the Bank of Mom and Dad
• How much income do I need to qualify for a mortgage in Canada?