A private mortgage is short by design. Knowing exactly how the term works, including when it ends, what renewal costs and whether you can leave early, is just as important as the rate. These details decide whether a private mortgage stays a bridge or turns into a trap.
How long is a private mortgage term?
Most private mortgages are set up for about a year, sometimes shorter or longer. The term is meant to give you enough time to fix whatever kept you from a bank, then move on. When the term ends, the full balance is due.
What happens at the end of the term
You have three main options:
- Refinance with a bank, credit union or alternative lender. This is the usual goal.
- Renew with the same private lender for another term, if they agree.
- Sell the property and pay the mortgage off from the proceeds.
Start planning several months before the term ends. Refinancing takes time, and appraisals and approvals can run into delays.
Renewals
Renewal isn’t automatic. The lender decides whether to offer one, and on what terms. Renewals commonly come with a renewal fee, and the rate may change. If your situation has improved, renewal may also be a chance to move to a better lender instead.
Repeated renewals are where private mortgages get expensive. If you find yourself renewing more than once, revisit your exit strategy with a broker.
Paying off early (prepayment)
Private mortgages handle early payoff in different ways:
- Open: pay off any time without a penalty.
- Closed for a period: no payoff allowed for the first few months, or a penalty applies.
- Interest penalty: a set number of months’ interest if you pay off early.
- Notice required: you must give the lender written notice before paying off.
If you expect to refinance or sell soon, an open or lightly penalized mortgage can save real money even if the rate is a little higher.
If you can’t pay at maturity
If the term ends and you can’t refinance, renew or sell in time, the mortgage is in default. Lenders can add fees and, eventually, start legal action. In Alberta, foreclosure goes through the courts and takes time, but costs grow quickly. Talk to your broker and lender before the maturity date. Options are almost always better early. Our guide to private mortgages when you’re behind on payments explains more.
Read these clauses before you sign
- Maturity date and what happens on that date
- Renewal terms and fees
- Prepayment rules and penalties
- Late payment and default fees
- Whether interest is prepaid or held back
Your lawyer should walk you through each one.
Set up your term the right way
A broker can help you choose a term length and prepayment terms that match your plan, so you’re not paying for time you don’t need or rushing to beat a deadline.
This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.