A growing number of Canadian homeowners face the possibility of having their mortgage renewal denied as lenders tighten standards amid rising financial pressures, according to industry experts. While most borrowers will successfully renew their mortgages, a small but increasing segment is being informed by their lenders that they do not qualify for continued financing.
Leah Zlatkin, a mortgage broker with LowestRates.ca, explained that lenders are scrutinizing borrowers more closely several months before their renewal date. “If you’ve had difficulty making payments on time… and they see you’ve regularly missed payments on your credit cards or have negative balances in your chequing or savings accounts, they may question the renewal and call to inform you they won’t be renewing your mortgage,” Zlatkin said.
The primary driver of these non-renewals is financial hardship, but lenders are likewise assessing overall risk. A borrower’s public profile, such as involvement in legal proceedings like fraud cases, can also raise concerns, Zlatkin added. This comes as the Bank of Canada has raised its key interest rate in recent years to combat inflation, increasing borrowing costs for homeowners. The current rate stands at 2.25%, approximately two percentage points higher than at the start of the pandemic.
The Canadian Mortgage and Housing Corporation (CMHC) recently reported signs of financial strain among homeowners in Toronto and Vancouver, with mortgage defaults expected to rise, albeit from a low base. The report specifically highlighted that first-time homebuyers who purchased during the pandemic, when interest rates were historically low, are particularly vulnerable. These borrowers often carry higher debt loads relative to their income and have limited equity in their homes.
More than 1.5 million households have already renewed their mortgages at higher interest rates and another million are expected to do so in the coming year, according to the CMHC. This wave of renewals is creating significant financial pressure for many Canadian families.
Experts suggest several options for homeowners facing non-renewal. Adding a guarantor or co-signer, such as a spouse, parent, or sibling, to the mortgage could improve the chances of approval. Increasing income through additional employment or renting out a portion of the property is another potential solution, Zlatkin noted.
Ron Butler, principal mortgage broker at Butler Mortgage, emphasized that lenders are not randomly denying renewals. “The federal government has made it clear to them that if people are current on their payments, they must provide some form of renewal assistance,” he said. Reducing debt is also crucial; for example, selling a vehicle or paying off a loan can strengthen a borrower’s financial position.
In some cases, homeowners may be forced to sell their homes or seek private mortgage financing, which carries significantly higher interest rates. Private lenders can charge rates of 9% or more, compared to around 4% from traditional banks and 5-6% from alternative lenders. While more expensive, a private mortgage can provide temporary relief, allowing homeowners time to improve their financial situation and potentially return to a traditional lender.
Zlatkin indicated there is currently “no indication” that lenders will ease renewal standards this year. “As long as people are making their payments and haven’t had major issues that the bank can identify, and there’s nothing negative on their credit report, most people won’t have trouble renewing,” she concluded.
