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Originally Posted by SumAznGuy
On appearance, I like what you wrote xpl0sive. It was well thought out and the math backed it up. What I was asking was for sources that says the banks will ask for more money when you go to renew.
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The bank is not legally obligated to renew your mortgage.
So let's say your bank does not want to renew because you are in a position of having negative home equity, they essentially see you as a high risk client and would prefer to pass you off on another institution.
So you go hit the mortgage brokers, lets' say you basically have 0$ to put down, and the house you are living in currently has a market value of 500k, and you owe 550k. (Due to a downtrend in RE sales etc.)
No other lenders will approve you, because the second they take you on as a customer, they immediately put themselves in a position of carrying a 50k cash debt risk in addition to those risks associated with RE market price downtrends and foreclosure process losses.
So back to your bank, you can't get anyone else to finance you, and you beg them for help, knowing full well the only other option will be to walk away from the house in which case the bank will foreclose, and then chase you down for the money they end up out of pocket. (I believe this is regulated by Province, some of which have non re-course clauses, some don't)
The bank may give you criteria, something to the effect of "If you can come up with 75k cash we can renew" etc.
So yes, the bank can refuse your renewal due to negative equity, for an example of this, see the below;
Lender Refuses to Renew, Owners Face Foreclosure | Calgary Real Estate Review
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They had mortgaged their house through a mortgage broker and the Lender was GE Money. GE Money told them that it no longer wanted to renew.
The clients are self employed. They are not able to qualify for a mortgage at this time. Also, the house is valued at no more than what is owed on the mortgage.
This may be a one shot instance. However, in the 1980′s many small mortgage companies refused to renew mortgages in Alberta. Basically they were pulling their money out of Alberta in light of the property devaluation that occurred here at that time. I have heard rumors that more of the small lenders are doing that now.
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