Last month Mortgage Trends received an email from a distraught client who had just received a letter from his mortgage lender letting him know his mortgage maturing in just five months would NOT BE RENEWED!
Another family complained that their mortgage lender had sent them a renewal notice with a new rate – 7.99%!
Other horror stories abound such as borrowers having to pay for a new appraisal on their home!
Time was if your repayment history was impeccable, you did not worry about your mortgage renewal. If your payments were made on time, no delinquencies or property tax defaults, renewal was virtually automatic.
Part of the problem is the impact of “IFRS9” (International Financial Reporting Standards) that will be coming into force at the end of 2018.
Now lenders will need to set aside additional reserves on a file should there be a substantial change in the profile in order to mitigate the risk of a mortgage default. The only way for a lender to determine this is by updating the information on the client periodically, and renewal time would be most appropriate.
Credit is just one of the tests, job loss and value decline can also impact reserve requirements.
Lenders will now be scrutinizing, for example, credit reports:
- A credit score is that is lower than when they bought the house
- Credit card balances more than 50% of their limits
- Any unemployment or disability
- Late payments that report on the Bureau
- Collection disputes
- Consumer proposal or personal bankruptcy
What can a homeowner with a mortgage coming up for renewal do in preparation for that day?
A few things to consider in mitigating the possibility of being turned down should include some/all of the following:
- For openers, it is vital that you know what is in your personal credit report. Contact Equifax or TransUnion credit bureaus and get yourself a copy of your most recent Credit Report because you want the Credit score as well.
- If you are not sure how to read and interpret the information contained in your report, find a professional who will do this for you. I will be more than happy to go over your Credit Report with you and make suggestions or recommendations in order to assist in improving your credit picture.
- If the report is a little shaky (e.g. late payments, disputes, consumer proposals, bankruptcies etc.), now is the time to improve the picture BEFORE your mortgage comes up for renewal.
- In reality, you should get your personal finance house in order at least six months before your renewal date, because that’s when many lenders work on renewing their mortgage portfolio.
Any of the above will make lenders very nervous about renewing. If your mortgage is maturing soon, you need to be aware of the above.