You secured a private mortgage six months ago. It solved your immediate problem—bought the property banks wouldn't finance, consolidated debt during a separation, or bridged a time-sensitive transaction. You're paying 10-12% interest instead of the 5-6% traditional mortgage rate you'd prefer. The one-year term is approaching.
Now what?
Private mortgages are designed as temporary solutions, not permanent financing. The higher cost (4-8% above traditional rates) makes them unsustainable long-term for most borrowers. Your exit strategy—how and when you'll transition to traditional bank financing or alternative solutions—should be planned from day one, not scrambled together at renewal.
In this guide, we'll explain typical private mortgage timelines, when you should refinance to traditional financing, what qualification improvements to make during your private mortgage term, and what to do if you can't refinance on schedule.
Why Your Exit Strategy Matters More Than Your Entry Strategy
Most borrowers focus on getting the private mortgage—solving the immediate crisis. But the real financial impact comes from how long you stay in it. The difference between a 12-month exit and a 36-month exit can cost tens of thousands of dollars.
The Cost of Delayed Exit: Real Numbers
Cost Comparison: Private Mortgage Timeline Impact
Scenario: $300,000 mortgage
Private mortgage rate: 10% + 2% lender fee
Traditional mortgage rate: 5.5%
12-Month Exit (Optimal)
Private mortgage costs (Year 1): $29,394 interest + $6,000 fee = $35,394
Traditional mortgage costs (Years 2-5): $16,500/year × 4 = $66,000
Total 5-year cost: $102,000
24-Month Exit (Acceptable)
Private mortgage costs (Years 1-2): $36,000 × 2 = $72,000
Traditional mortgage costs (Years 3-5): $16,500/year × 3 = $49,500
Total 5-year cost: $121,500
Cost difference vs 12-month exit: +$19,500
36-Month Exit (Costly)
Private mortgage costs (Years 1-3): $36,000 × 3 = $108,000
Traditional mortgage costs (Years 4-5): $16,500/year × 2 = $33,000
Total 5-year cost: $141,000
Cost difference vs 12-month exit: +$39,000
Conclusion: Every additional year in a private mortgage costs approximately $13,500-$19,500 more than traditional financing on a $300,000 mortgage. Exit strategy planning isn't optional—it's a direct financial impact.
Typical Private Mortgage Timeline: What to Expect
Private mortgage terms in Ontario typically range from 6 months to 2 years. Here's what each timeline looks like:
6-12 Months: Bridge Financing
Use cases: Time-sensitive property purchases, divorce/separation settlements, power of sale refinancing, short-term cash flow gaps.
Exit strategy: Resolve immediate crisis, then refinance to traditional financing or sell property. Qualification improvements needed are minimal since traditional approval was close.
Success rate: 70-80% successfully exit to traditional financing within 12 months when issue was purely timing-based.
12-24 Months: Income Rebuilding / Credit Repair
Use cases: Self-employed borrowers building tax return history, credit rebuilding after bankruptcy/proposal, new business owners establishing track record, recent immigrants building credit.
Exit strategy: Use 12-24 months to build traditional qualification: file 2 years of tax returns showing adequate income, rebuild credit to 660+, reduce debt ratios, establish payment history.
Success rate: 50-65% successfully transition to traditional financing within 24 months with disciplined execution of improvement plan.
24+ Months: Property Value Growth / Major Improvements
Use cases: Properties requiring significant renovation (value-add strategy), properties in appreciating markets building equity, borrowers with structural income issues requiring longer resolution time.
Exit strategy: Complete renovations to increase property value and equity position. Allow market appreciation to improve LTV ratio. Address fundamental income/employment changes. May involve property sale if qualification remains unattainable.
Success rate: 30-45% successfully refinance; 20-30% sell property; remainder renew private mortgage or seek alternative solutions.
💡 Key Insight: The longer your anticipated timeline, the more critical your exit strategy planning becomes. If you need 24+ months, you should have monthly milestones mapped out from day one, not hope it "works out" at renewal.
What to Do During Your Private Mortgage Term to Prepare for Traditional Refinancing
Your private mortgage term isn't passive waiting time—it's active preparation. Here's what you should be doing each month:
Priority #1: Perfect Payment History
Why it matters: Traditional lenders review your private mortgage payment history. Missed or late payments signal continued risk, even if other qualifications improve.
What to do: Set up automatic payments. Never miss a payment, even if you must delay other bills. One missed private mortgage payment can block traditional refinancing for 12+ months.
Timeline impact: 12 consecutive on-time payments significantly improves traditional qualification. 24 months of perfect history nearly erases prior credit issues.
Priority #2: Build Traditional Income Documentation
For Self-Employed Borrowers
- File tax returns for 2 consecutive years showing income sufficient for mortgage qualification
- Target income on tax returns of at least 3× annual mortgage payment (e.g., $90K+ income for $2,449/month mortgage)
- Work with accountant to balance tax optimization vs mortgage qualification needs
- Maintain detailed books showing actual business revenue (even if tax-reported income is lower)
- Consider reducing discretionary write-offs in qualification years to show higher income
For Employed Borrowers
- Maintain stable employment for at least 6-12 months (job changes reset qualification timeline)
- Request employment letter confirming position, salary, and tenure
- Keep pay stubs from last 2-3 months organized
- Avoid taking unpaid leave or reducing hours during qualification period
Priority #3: Rebuild Credit Score to 660+
Minimum target: 660+ credit score for traditional bank qualification. 700+ significantly improves rate and terms.
Credit rebuilding tactics:
- Pay ALL bills on time, every time (set up automatic payments)
- Keep credit card balances below 30% of limit (preferably under 10%)
- Don't close old credit accounts (credit history length matters)
- Obtain secured credit card if you have limited credit history
- Dispute any errors on credit bureau reports
- Wait 7-10 months after bankruptcy discharge before applying for traditional mortgages
Timeline: Expect 6-12 months of perfect payment behavior to improve score by 40-80 points. Serious credit issues (bankruptcy, proposal) require 12-24 months of rebuilding.
Priority #4: Reduce Debt Ratios Below 40-44%
Traditional lenders require Total Debt Service (TDS) ratio under 40-44%. This includes mortgage payment + property tax + heating + all other debt payments ÷ gross income.
Debt reduction strategies:
- Pay off car loans, credit cards, lines of credit during private mortgage term
- Avoid taking on new debt (new car loans, credit cards, lines of credit)
- Consider debt consolidation if multiple high-interest debts exist
- Calculate your TDS monthly and track progress toward 40% threshold
Example calculation: $80,000 income = $32,000 max annual debt service (40%). If mortgage + property tax = $28,000/year, you can only have $4,000/year in other debt ($333/month) and still qualify.
Priority #5: Build Equity to 20%+ (80% LTV or Lower)
Traditional lenders require 20% equity minimum for refinancing (80% LTV max). Build equity through:
- Mortgage principal pay-down: Make extra payments toward principal if cash flow allows
- Property appreciation: Market value increases in hot markets (less controllable)
- Property improvements: Renovations that increase appraised value (kitchen, bathrooms, finished basements add most value)
- Additional down payment at refinance: If equity falls short, bring cash to closing to reach 20%
What to Do If You Can't Refinance to Traditional Financing
Not every borrower successfully transitions to traditional financing on the planned timeline. Life happens: income drops, property values decline, credit issues emerge. Here are your options:
Option 1: Renew with Same Private Lender
How it works: Most private lenders prefer renewals over foreclosure. If you've made payments on time and the property value is stable, they'll typically offer renewal at similar or slightly better terms.
Negotiation leverage: Perfect payment history gives you leverage to negotiate: lower rate (0.5-1% reduction), waived renewal fees, extended term (12-24 months instead of 6-12 months).
When to use: You're close to traditional qualification but need 6-12 more months. Your timeline was realistic but circumstances delayed progress slightly.
Option 2: Refinance to Different Private Lender
How it works: Shop competing private lenders. If your equity has improved (property appreciation, principal pay-down), you may qualify for better rates (1-2% lower) or extended terms.
Costs to consider: Lender fees (1-2%), appraisal ($400-$600), legal fees ($1,200-$1,800). Ensure rate savings justify switching costs.
When to use: Your current lender won't negotiate, your LTV has improved significantly (75% → 65%), or you need a longer term than current lender will offer.
Option 3: Extend Timeline and Continue Qualification Work
How it works: Renew private mortgage for 12-24 months and use the time to resolve remaining qualification barriers: complete second year of tax returns, finish credit rebuilding, pay off remaining debts, complete property renovations.
Re-assess strategy: If you're no closer to traditional qualification after 24 months, reassess whether traditional refinancing is realistic. You may need to consider alternative long-term solutions (property sale, alternative income strategies).
When to use: You've made measurable progress but need more time. Your plan is working, just slower than anticipated.
Option 4: Sell the Property
When to consider: You're unable to make private mortgage payments comfortably, traditional qualification remains out of reach after 24+ months, property value has appreciated significantly (making sale profitable), or life circumstances have changed (job loss, relocation, divorce finalized).
Financial outcome: If property has appreciated, sale may yield profit even after paying private mortgage costs. Calculate break-even: original purchase price + private mortgage costs + selling costs (realtor, legal) vs current market value.
Example: Bought for $500K, private mortgage costs $45K over 18 months, selling costs $30K. Break-even = $575K. If property worth $620K, you net $45K despite higher mortgage costs.
⚠️ Critical timing note: Start refinancing conversations 90-120 days before your private mortgage matures. Traditional mortgage approval takes 4-8 weeks. If you wait until 30 days before maturity, you'll be forced into renewal without negotiating leverage.
Frequently Asked Questions About Private Mortgage Exit Strategies
How long should I stay in a private mortgage?
Can I refinance from a private mortgage to a traditional bank?
What happens if I can't refinance my private mortgage when it matures?
Will private lenders report my payments to credit bureaus?
Should I make extra principal payments during my private mortgage term?
Key Takeaways
- ✓ Exit strategy costs more than entry: Each additional year in a private mortgage costs $13,000-$20,000 more than traditional financing. Plan your exit from day one.
- ✓ Typical timeline is 12-24 months: Bridge financing (6-12 months), income rebuilding (12-24 months), or property value growth (24+ months) depending on your qualification barrier.
- ✓ Five priorities during private mortgage term: Perfect payment history, build income documentation, rebuild credit to 660+, reduce debt ratios below 40%, build equity to 20%+.
- ✓ Start refinancing conversations 90-120 days early: Traditional approval takes 4-8 weeks. Waiting until 30 days before maturity eliminates negotiation leverage.
- ✓ If you can't refinance on schedule: Renew with same lender, shop different private lenders, extend timeline with clear milestones, or sell property if traditional qualification remains unrealistic.
