When you get a mortgage or loan from a private lender, it’s a contract that lasts for a specific time. A traditional mortgage has a term that can last from one year to 5 years or even longer. Most private lenders offer only one-year terms. Unless you pay the balance in full, you must renew your mortgage at the end of each term.
Even though private lenders have different more streamlined lending criteria, being able to renew your mortgage or other loans from a private lender is optional. When the time comes for renewal, traditional lenders look at different factors, including your updated credit score and payment history. There are some scenarios and reasons why private lenders won’t renew some of your loans even though their process is more flexible.
Are you a Borrower in Need of a Loan Renewal?
There are many reasons why a borrower wants to renew a loan.
However, most people renew their mortgage because they want to continue to own/live in their home and need help finding a better mortgage deal. Most people continue to renew their mortgage until it is paid off.
It’s essential to remember that when you renew a loan, you continue a contract.
Have you Ever Been Denied by a Private Lender?
A private lender can deny a loan just like a traditional counterpart. Several red flags can tell a private lender you are too risky to be approved. Some things that can potentially contribute to a denial include delinquent payments, collection accounts, and bankruptcy.
Why Might Private Lenders Decline Renewals?
A private lender can also deny your renewal application for different reasons.
Some of these include:
1. Missed mortgage payments.
2. Declining property values (impacts LTV).
3. The lender simply wants their money back (prevalent right now due to the market).
Other niche reasons:
- Failure to pay HST/property tax or insurance.
- Threats from the borrower, bad behaviour.
- Owner causes intentional damage to property.
Lenders commonly ask for their money back to cover losses on other properties or payments on other debts.
How do you boost loan renewal chances with private lenders?
Private lenders want to see a combination of addressing issues and excellent financial management before they renew a loan. You can improve your chances of getting a renewal with a private lender.
- Making your payments on time with your current loan is critical. A good payment history goes a long way to getting a loan renewed.
- You can contact your private lender to determine the requirements and if anything has changed.
- You can also ask friends and family to add their property as collateral. Or if the borrower has cash, they can offer to pay down the mortgage at renewal, which helps the LTV.
Sometimes, the private lender won’t renew your loan, and you must look at other sources.
Alternatives When Private Lenders Won’t Renew?
If a private lender won’t renew your loan, there are other options to explore, including selling the property.
Asking a Mortgage Broker
Mortgage brokers generally work with a wide range of lenders.
Friends and Family
If you can’t get your loan renewed by a private lender, you can ask friends and family for the cash. If you choose that method, remember to keep the terms and conditions clear to avoid misunderstandings.
Selling The Property
You can sell the property if you can’t get a loan renewed. It’s possible to use a real estate agent since they have expertise in marketing. Some people decide For Sale by Owner (FSBO) is best. You can also sell your house quickly using a cash home buyer who can get you a quote in as little as 24 hours.
How Do Private Lenders Gauge Renewal Risk?
Private lenders use different criteria from credit unions and banks to gauge a renewal risk. While more traditional institutions rely heavily on your credit score and standard income metrics, private lenders focus on other numbers like the Loan-to-Value (LTV) ratio.
The Loan-to-Value (LTV) ratio is calculated by dividing the mortgage amount requested by the property’s appraised value. Here’s an example. An applicant has $400,000, and the mortgage they are applying for is $300,000. The LTV ratio would be 75%. That’s the percentage most private lenders use as a cut-off point.
Smaller cities and towns have much lower LTVs. For those with a population of less than 30,000 people, the number is usually 65%. Many private lenders won’t even touch a place with under 10,000 people.
Common Mistakes Blocking Loan Renewals with Private Lenders?
There are some common mistakes that applicants looking for loan renewals with private lenders must avoid. Below are some examples of these mistakes:
Missing Your Payments
Missing payments can hurt your chances of getting a loan renewed and damage your credit score. According to Nerdwallet, over 30 days past due can knock as much as 100 points off your credit score. That kind of red flag can affect your chances of renewal.
Not Communicating With Your Lender
A lender will typically assess the property value, creditworthiness and your financial situation before they renew. Not supplying the correct information or documentation can put a renewal at risk.
Proactively communicating with your lender if facing financial difficulties can lead to alternate arrangements and solutions. Talking to them before the renewal deadline can help your chances of renewal and or getting better rates.
Need Help with Mortgage Renewal?
Mortgage Broker Store focuses on mortgage-related products. Mortgage applications that don’t meet lending requirements from traditional lenders are one of our specialties. Our team consists of private lenders, brokers, and licensed mortgage agents. Let us help you get a loan that fits your budget and needs.
Email ron@mortgagebrokerstore.com or call 416-499-2122.
