A private mortgage is a fantastic “bridge.” It helps you buy a home when the bank says no, or it gives you quick cash when you have a bad credit history.
However, private mortgages are not meant to last forever. Because private mortgage rates are higher than bank rates, you need an exit strategy. An exit strategy is simply a plan to move your debt from a private lender back to a traditional “A-lender” like a big bank or credit union.
In this guide, we will show you exactly how to prepare for that move so you can save money and enjoy long-term financial peace.
What is a Private Mortgage Exit Strategy?
A private mortgage exit strategy is a step-by-step financial plan used by borrowers to pay off a high-interest private loan. This is usually done by refinancing into a traditional bank mortgage once the borrower has improved their credit score, stabilized their income, or increased their home equity.
Why You Need a Plan from Day One
Most private real estate lenders offer terms for only 1 to 2 years. They expect you to leave. If your term ends and you don’t have a plan, you might be forced to renew at even higher rates or, in the worst-case scenario, sell your home.
At Seven Lending, we believe the best private mortgage lender is one that helps you leave them for a better deal.
4 Steps to Get Back to a Traditional Bank
1. Fix Your Credit Score
The #1 reason people use private lending is a bruised credit score. To get back to a bank, you usually need a score of at least 650.
- Action: Pay every bill on time. Even one late payment during your private mortgage term can ruin your chances of moving to a bank.
- Pro Tip: Follow these 10 tips for improving your credit score to speed up the process.
2. Prove Your Income
Banks are very strict about “T4 income.” If you are a self-employed mortgage borrower, you need to show the bank that your business is stable.
- Action: Keep clean records and file your taxes on time. If you can’t prove traditional income yet, you may need to move to a B-Lender as a “stepping stone” before a big bank.
3. Manage Your Debt-to-Income Ratio
Even with a great house, a bank will reject you if you have too many car loans or credit card balances.
- Action: Use the time during your private mortgage to pay down small debts. If you have too many high-interest bills, consider debt consolidation to simplify your finances into one payment.
4. Monitor Your Home Value
Banks will only lend a certain percentage of your home’s value (usually 80%). If the real estate market in BC drops, you may need to pay down your principal to meet the bank’s requirements.
The “Stepping Stone” Method
Sometimes, moving directly from a private lender to a big bank is too big of a jump. In these cases, we use a “B-Lender.”
- Year 1: Private Mortgage (Focus on fixing credit).
- Year 2-3: B-Lender (Lower rates than private, but more flexible than banks).
- Year 4+: Traditional Bank (The lowest possible rates).
Common Questions About Exiting a Private Mortgage
How long does it take?
Most of our clients at Seven Lending are ready to “exit” within 12 to 24 months.
What if my credit is still bad?
If your credit hasn’t improved enough, we can often help you find a different bad credit mortgage or renew your current term while we keep working on the plan.
Are there fees to leave?
Most private mortgages have a “discharge fee” or a small penalty if you leave early. You should factor these into your mortgage discharge fee calculations.
Let Seven Lending Build Your Exit Strategy
We don’t just give you a loan; we give you a path back to financial health. We are experts in BC home equity loans and alternative financing, but our goal is always to see our clients qualify for the best rates possible.
Don’t wait until your mortgage expires. Let’s start building your exit strategy today.
Seven Lending serves all of BC, providing specialized solutions for private lending in Vancouver, Surrey, and beyond.