The Canadian housing market is truly a unique one. House prices have increased multiple times especially in Vancouver and Toronto. Interest rates are still hovering very low with an upward trending pressure. Canadians who have locked in their mortgages for 3 or 5 years have nothing to worry about until renewal time. If you haven’t been through a mortgage renewal in a while, you may be wondering if you have to go through the application process again. At mortgage renewal time, credit checks are usually considered before a renewal is processed – there are some exceptions.
Remember, your credit score is always available to your creditors and they will check at any time they wish. In my experience as a financial advisor, my clients worry because their credit score may have dropped or they may have accumulated too much debt since they first signed a mortgage. My advice always is to check your credit history first and see where you stand. If your credit report is a wreck, and you have waited until renewal time to take care of it, you may be facing a higher interest rate or simply be denied a renewal.
Having said that, based on my experience, most lending institutions simply forward a renewal letter to you and life goes on. This is happens 80% of the time and almost 100% of the time if you have continually made your payments on time. To the lender they see your payment history and consider you a good client. They will likely not even check the credit report. However, all it takes is 2 or 3 late payments to flag the account manager to review and pull your credit file. If you are worried about not being able to renew, the best plan is to review your credit file to confirm your suspicions or to simply sign the renewal papers if you get one. In Canada, credit reports can be obtained for free with the need for credit card.
If you are following best practice though, renewal time is usually a great opportunity to shop around for the best rates. You could end up saving thousands by not renewing with your current lender. 6-8months before your current mortgage term ends, it is recommended that you start looking into current mortgage rates and even speak to the bank or broker. If you plan to change lenders, there will certainly be a credit check – similar to what you had to do when you first shopped around for a mortgage. Lenders will assess your current financials, your credit rating and more to see what rates they can offer.
So are credit checks done with mortgage renewal? The short answer is yes – though less likely if you just sign your renewal papers. The more important thing to remember is to keep regular timely payments and monitor your credit report.