Private lenders are choosing not to renew some mortgages, especially those that were taken out within the last 12 months. We’ll look at why that’s happening and what to do if you find yourself in a situation like that.
Why do private lenders not renew mortgages?
Private lenders may not renew your mortgage for a couple of reasons. It could be because of you or the property itself. When you take out a mortgage with a prime or A lender, the lender is concerned with you as a borrower. The lender wants to know about your income, credit, debts, and assets, to make sure you can comfortably afford to make the mortgage payments. Any prime lender may not renew your mortgage if any of those have changed. Not so with private lenders. With a private lender, the lender is most concerned about the property itself. The lender wants to make sure there would be enough equity in the property to cash out and recoup the money owing if you, the borrower, aren’t able to repay the mortgage according to the terms you agreed to. Loan-To-Value (LTV) is key with private mortgages. The higher the LTV, the greater risk there is for the lender. Falling home prices tend to make private lenders nervous, as there may not be enough equity left to make them whole again if you, the borrower, aren’t able to repay the mortgage. That means that private lenders are choosing not to renew some private mortgages. Some have even put private mortgages on hold altogether. Lenders are particularly nervous about those mortgages taken out in the last 12 months, as there isn’t as much built-up equity as a cushion in case of a downturn in the real estate market.
What’s a borrower to do? Imagine this. You’ve just been informed by your private lender that your mortgage isn’t being renewed. What do you do next? It’s important to be proactive. Rather than waiting until the eleventh hour to find out if your private mortgage is being renewed, you want to contact your private lender as early as possible in the process and try to lock down an option. It’s better to know three months ahead of time that your private mortgage isn’t going to be renewed, rather than three weeks ahead of time. If your mortgage isn’t going to be renewed, you want to reach out to your mortgage broker right away. Your broker can see what options are out there and try their best to find a better option for you.
Even if you receive an offer for a private mortgage at renewal, it’s a good idea to contact a broker. You could find a better option out there that you didn’t even know about.
Prepare to negotiate with lenders
If your credit situation has improved, you might consider working with a B lender. A B lender can almost always offer you more competitive rates and better terms than a private lender. If you worked with a mortgage broker who took the time to explain what you need to do to improve your financial situation and you did the necessary steps, you should know exactly what you need to do to graduate from a private lender to an A or B lender.
Have a lump sum pre-payment available
As a last resort, you want to have a lump sum pre-payment available. By making a lump sum payment, you can reduce your mortgage balance and improve the LTV. A lower LTV means that the private lender has more of a cushion and may be willing to renew your mortgage when they otherwise wouldn’t.