A rental mortgage renewal is essentially the process of extending the term of your mortgage on a rental property. It allows property owners to continue their mortgage arrangement with their current lender, or explore better offers from other lenders. If your renewal date is approaching, this is the time to review your options and make informed decisions.
This product is specifically for borrowers who currently own a rental property and whose mortgage renewal date is within the next 120 days. It's also a great option for those looking for a better deal than what their current lender is offering. If you're not satisfied with the renewal terms your current lender is proposing, it may be worth exploring other options to find a more competitive rate or better mortgage features.
When renewing a rental mortgage, the maximum Loan-to-Value (LTV) ratio is typically set at 80%. This means that the mortgage can cover up to 80% of the property's current market value, while the remaining 20% needs to be covered by your own equity. Additionally, the minimum term for a renewal is usually 2 years, ensuring you have a stable agreement for at least that period. The minimum amortization period is 5 years, meaning that your mortgage payments are spread out over at least five years. Moreover, the minimum mortgage amount for a renewal is set at $25,000, so smaller loans might not be eligible.
For rental mortgage renewals, the maximum amortization period is usually aligned with the remaining amortization on your current mortgage. In other words, it cannot be extended beyond the time left on the original mortgage unless you opt for a rental refinance. A refinance allows you to access more favorable terms, but it is treated differently from a simple renewal, especially if the goal is to extend the amortization period.
Most lenders will require a Debt Service Coverage Ratio (DSCR) of at least 1.10 for rental properties. This ratio measures the property’s ability to cover its mortgage payments based on rental income. For example, if your rental income is $2,000 per month, and you incur $500 in expenses (e.g., property management fees, maintenance), and you have a $1,200 monthly mortgage payment, your DSCR would be 1.25. This is calculated as follows:
DSCR = (Rental income – Expenses) / Mortgage payment
DSCR = ($2,000 – $500) / $1,200 = 1.25
A DSCR above 1.0 indicates that the property generates enough income to cover the mortgage payments, which is a key factor in qualifying for a rental mortgage renewal.