Private mortgage exit strategy: start planning on day one
A private mortgage is meant to be a bridge, and FSRA says you need a realistic exit strategy before you sign. Here's how to build one: the three ways out, a month-by-month timeline, what the next lender will check, the cost of staying another year and what to do if plan A slips.
A private mortgage exit strategy is your written plan for moving from a private mortgage to lower-cost financing, or selling, before the term ends. FSRA describes private and alternative mortgages as a temporary option, typically for one or two years, and says you need a realistic exit strategy and a back-up plan. There are three common exits: refinance with a bank or other prime lender, step to an alternative (B) lender first, or sell. Start on day one: fix what caused the decline, keep every payment on time, protect your equity and begin shopping four to six months before maturity. In our example, staying one more year on a $300,000 private mortgage at an assumed 10.99% interest-only with a 2% renewal fee costs about $38,970, while the same balance at an assumed 6.49% B-lender rate costs about $2,008 a month and starts paying it down.
Key takeaways
- →A private mortgage exit strategy is a written plan to refinance with a lower-cost lender, or sell, before the private term ends.
- →FSRA says private mortgages are typically for one or two years and that you need a realistic exit strategy plus a back-up plan.
- →There are three common exits: a bank or prime lender, an alternative (B) lender as a stepping stone, or a sale.
- →The next lender will check credit, income, equity and the stress test, so the plan should target each one.
- →Start shopping four to six months before maturity. Another private year can cost tens of thousands of dollars in interest and fees.
Short answer: A private mortgage exit strategy is your plan for getting from a private mortgage to lower-cost financing, or selling, before the private term ends. FSRA describes private and alternative mortgages as a short-term solution, typically used for one or two years until you can qualify for a lower-cost option, and says you need a realistic exit strategy before you sign [1]. It also says to have a back-up plan in case the first one doesn't work [1].
This guide shows how to build that plan: the three ways out, a timeline, what the next lender will check and what to do if things slip. 8Twelve doesn't lend or fund private mortgages; we arrange mortgages through 65+ lenders, and our equity takeout page explains how we compare options.
Why the exit matters more than the rate
Private mortgages are often interest-only, so you're paying to borrow the money but not reducing what you owe [1]. FSRA also notes that private mortgage fees are often higher than with a traditional mortgage [1]. That means the balance doesn't shrink on its own, and every extra year adds interest and, often, a renewal fee. Our guide to private mortgage rates shows how fees change the real cost.
Illustration: a $300,000 private mortgage at an assumed 10.99%, interest-only:
| Private (assumed 10.99%, interest-only) | B-lender (assumed 6.49%, 25 years) | Bank or prime lender (assumed 4.49%, 25 years) | |
|---|---|---|---|
| Monthly payment | about $2,748 | about $2,008 | about $1,659 |
| Pays down the balance? | No | Yes | Yes |
| Cost of one more year | about $38,970 (interest $32,970 + assumed 2% renewal fee $6,000) | — | — |
Rates and the fee are assumptions for illustration, not quotes. Calculated in Python with semi-annual compounding for the amortizing loans.
Moving to the B-lender in this example lowers the payment by about $740 a month and starts paying down principal; reaching a prime lender lowers it by about $1,089.
The three ways out
| Exit | When it fits | What it needs |
|---|---|---|
| Refinance with a bank or prime lender | The reason for the decline is fixed: credit rebuilt, income documented, debts paid | Clean recent payment history, provable income, enough equity, passing the stress test [3] |
| Step to an alternative (B) lender | You're close but not there yet, for example newer self-employed income | Usually more flexible income and credit rules than a bank, at a higher cost; see our B-lender guide |
| Sell | The numbers won't work at any lender, or the plan has slipped twice | Enough equity to repay the loan, fees and closing costs |
"When it fits" and "what it needs" reflect our experience across lenders.
In a private mortgage now? A licensed 8Twelve agent can map your exit: which lender type you're closest to, what has to change and when to apply, across 65+ lenders, OAC. Review your options
What the next lender will check
Plan against the same tests the next lender will use:
- Credit. Late payments on loans and cards can stay on your credit report for up to 6 years; a consumer proposal comes off 3 years after it's paid off or 6 years after signing, whichever comes first [2]. On-time payments on the private mortgage itself help show the pattern has changed.
- Income. Banks usually want documents that prove the income you're using. For self-employed borrowers, that often means filed tax returns; in our experience, timing your exit after the next filing can make the difference.
- Equity. Refinancing with a prime lender is usually capped at 80% of your home's value [4]. Fees added to the loan and any drop in value both push you closer to that cap.
- The stress test. Federally regulated lenders must qualify uninsured borrowers at the greater of the contract rate plus 2% or 5.25% [3].
Equity check, worked through: a $500,000 home with the $300,000 private loan is at 60% loan-to-value. Add an assumed $7,500 in exit costs (lender fee and legal) to the new loan and it's 61.5%. If the home is valued at $460,000 instead, it's 66.8%: still under 80%, but the cushion is thinner than many expect.
Income check, worked through: at an assumed 4.49% contract rate, the stress-test rate is 6.49% [3]. The qualifying payment on $307,500 over 25 years is about $2,058 a month. With assumed property taxes of $400, heat of $100 and other debt payments of $500, a lender capping the total debt service ratio at 44% would look for roughly $83,400 in annual income. Your lender's limits and inputs may differ; our GDS and TDS guide explains the ratios.
A month-by-month exit plan
For a typical one-year private term:
- Before you sign (month 0). Ask your broker the FSRA questions: why private and not a traditional mortgage, what it costs now and at renewal, and whether the exit strategy is achievable [1]. Write down the one or two things that have to change.
- Months 1 to 3. Make every payment on time. Set up automatic payments. Pull your credit reports and dispute errors.
- Months 3 to 6. Pay down the debts that caused the problem. Don't open new credit. If you're self-employed, get your books ready for the next filing.
- Months 6 to 8. Check your progress with your broker: credit, income documents and an updated value estimate. Decide whether you're aiming for a prime lender or a B-lender.
- Months 8 to 10. Apply. Allow time for an appraisal, documents and legal work.
- Months 10 to 12. Close the new mortgage before the private term ends. If it's not ready, start plan B now, not in the last week.
Plan B: if the exit slips
FSRA suggests asking up front whether the lender will offer a renewal if you still can't qualify for a traditional mortgage at the end of the term, and what renewal will cost [1]. Options to compare:
- Renew with the private lender for a shorter period, with a clear target for the next exit. Get the renewal fee and rate in writing early.
- Move to a B-lender first, even if a bank isn't possible yet, to lower the cost and start paying down principal.
- Sell on your own timeline rather than under pressure. FSRA notes that some private contracts start the power of sale process quickly after a missed payment [1], so act before payments fall behind.
If you're in Ontario, our guide to private refinance fees in Ontario covers the red flags to watch for at renewal.
From our desk: the exits that work are the ones with a named target, such as "file the 2026 return in April" or "pay the two cards to zero by June." "Improve my credit" isn't a plan; a date and a number are.
A private mortgage should be a bridge with a clear far side. Name what has to change, track it monthly, know the tests the next lender will use and start shopping four to six months before the term ends, with a plan B ready.
Run the numbers: compare monthly payments with our mortgage payment calculator, or read our refinance with bad credit guide.
This article is for general information only and isn't financial, legal or tax advice. Rates, products and terms change without notice and are available on approved credit (OAC). The rate and terms you qualify for depend on your individual financial situation, including credit, income, property and loan-to-value. "Best rates" means the most suitable options available for your situation, not a guarantee of the lowest rate. Example rates and payments are for illustration only, as of October 2026, and are not an offer. 8Twelve Mortgage arranges mortgages through 65+ lenders and does not lend directly. Licensed across Canada — see our licences.
Examples are for illustration only, as of October 31, 2026, and are not offers. Private, alternative and bank rates, fees and terms vary by lender and borrower and are available OAC. Rules checked against FSRA, FCAC and OSFI on October 31, 2026. 8Twelve does not lend or fund mortgages, including private, alternative or second mortgages; we arrange them with third-party lenders, and any lender or brokerage fees are disclosed in writing before you commit.
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Last reviewed on November 3, 2026