What is a loan renewal?
A loan renewal is an option that we offer to help in the times when you may not be able to repay the total amount due, but wish to receive an extension on the due date. If state law permits, you are able to pay only the amount of interest that has accrued to date, and the loan is then rewritten/reset for the original time period. When this is done the principal amount (amount borrowed) and the interest rate remain the same, however you will have a new due date.
A loan renewal is a loan you already have and you need more money so you renew the loan for more money. The two most common types of renewable loans are lines of credit and balloon mortgages. A line of credit is an ongoing availability to borrow money using your property as collateral. You pay back the balance and the money is available again. A balloon mortgage is a short-term loan with a long-term repayment schedule.
In the eyes of the bank, a loan needing renewal is the same as a new loan. The bank reviews your current financial information without regard to your credit strength at the original date. The financial review is usually the most time-consuming part of the renewal process. For this reason, a wise borrower will begin preparing a few months in advance of the maturity date. Approach your bank, if you don’t hear from it first, and ask what documentation you can submit to make it easier for the underwriters. They will want to see that your income can still support your payment obligations, and that you have sufficient assets to serve as an emergency payment source.