Mortgages are issued for a specific period of time, or term, that is calculated in years. For instance, you have been issued a 5-year mortgage, meaning the payments are set for that period of time. If you still owe money on this mortgage when the term expires, it will need to be renewed for another period of time. It can also happen that you would like to change the mortgage, by adjusting the monthly payment amount, or you would like to consolidate other debts into your home loan package. This can also trigger a mortgage refinancing.
A lender is under no obligation to renew an existing mortgage. Basically, it is an entirely new negotiation of the amounts and conditions. 99% of the time lender will renew if the payments have been done on time and that the market conditions are stable. One of the things a lender looks at is the loan-to-value ratio. This compares the current, assessed value of the property to the amount of money the borrower is asking for.
Canadian Home Prices Drop
In Canada, we are experiencing a significant drop in the prices of homes in quite a few cities. So, with a mortgage renewal, the potential lender will probably request a new appraisal of the property in question. This will establish the value of the new loan. Then they will look at the amount of debt the potential borrower has accumulated at this point. If there is too much debt to the current value of the real estate, the lender is likely to decline the renewal. The lender becomes concerned that the individual or family will be unable to repay the loan, resulting in foreclosure. Some lenders are requiring the applicants to prove that they have enough employment income to cover the cost of the mortgage. Many people are unable to qualify.
These are the reasons we are seeing many private lenders decline requests for mortgage renewals. It puts a homeowner in a difficult position. If they sell the property at lower market prices, they will not clear enough money from the sale.
Comparing Mortgage Options in Canada
Banks offer less expensive mortgages but have far stricter requirements with little room to maneuver. Private financiers are less constrained but will charge a higher interest rate. Except that, at this point, we are seeing the private side resorting to conservative measures as well. Banks are currently offering a 5% rate for a five-year fixed mortgage…if you can qualify. If the bank is not on your side, you will be looking at rates of 8.99% or more.
This is understandable. Private lenders are corporations that are funded by investors and the repayment of current loans. The private side can also be an individual who uses their own funds to back the financing of homes. These people are all skittish in light of the decline in real estate prices and an economy in flux.
Not all is gloom and doom. Fortunately, there are still companies like easyhouseloan.ca that have access to funding to handle mortgage renewals as well as new home purchases. If you are in need of some financial advice about how best to proceed in your current circumstances, contact representatives of this company to see what they can offer you as a solution.