The most important part of a private mortgage isn’t getting in. It’s getting out. A private mortgage is meant to be a bridge to something better: a lower-cost lender, a sale, or a debt-free home. Your exit strategy is the plan for crossing that bridge. Lenders care about it, and so should you.

Common exit strategies

Refinance with an alternative lender or bank

The most common exit. You use the private term to fix what kept you from a cheaper lender, then refinance. What that looks like depends on why you needed a private mortgage:

  • Credit problems: pay every bill on time, reduce card balances and let new positive history build.
  • Consumer proposal: finish it, or pay it out early. See private mortgages and consumer proposals.
  • Self-employed income: file returns that show enough income, on time. See self-employed private mortgages.
  • Arrears: keep every payment current so lenders see stability.

Sell the property

Sometimes the plan is to sell, whether it’s a home you’re moving out of, an investment property, or another asset. A private mortgage can buy time to sell at a fair price instead of in a rush.

Pay it off from another source

An inheritance, a business sale, a settlement or a bonus that’s expected but not yet received can all be exits, as long as the timing is realistic.

A timeline that works

  1. At funding: write down your exit and the steps to get there.
  2. Every month: make every payment on time, on every account.
  3. Halfway through the term: check in with your broker. Is the plan on track?
  4. A few months before maturity: start the refinance or the sale. Approvals and appraisals take time.
  5. Before the maturity date: have the new lender’s commitment, or a signed sale, in place.

If your plan stalls

Plans slip. Income takes longer to document, a sale takes longer than expected, or a credit issue lingers. If that happens:

  • Talk to your broker early, not on the last day.
  • Ask about renewal terms well before maturity. See terms, renewals and prepayment.
  • Consider a partial step, such as moving from a private lender to an alternative lender before reaching a bank.
  • Look at the full cost of another year versus selling.

Signs an exit plan is too optimistic

  • It depends on a large increase in income with no history behind it
  • It assumes your home’s value will rise
  • It needs everything to go right at once
  • No one has checked whether a lender would actually approve the refinance

Plan the exit before you sign

A good broker discusses the exit at the very first meeting, and helps you choose a term that gives the plan room to work.

This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.