How to Get Out of a Private Mortgage in Ontario

A private mortgage should be a stepping stone, not a destination. If you're currently paying 10–15% interest on a private loan, every month you stay costs you thousands more than necessary. The good news: most borrowers can transition to institutional lending within 12 to 24 months with the right plan.

Here's exactly how to get out of your private mortgage and into something more affordable.

Why Getting Out Matters — The Numbers

The financial difference between private and institutional rates is dramatic:

Moving from private to a B-lender saves over $1,000 per month. Moving to an A-lender saves over $1,500 per month. Over a 5-year term, that's $67,500 to $90,000 in savings.

Step 1: Understand Why You're in Private

Your exit strategy depends on what put you in a private mortgage. Common reasons and their solutions:

Credit Issues

Timeline to exit: 12–24 months

• Consumer proposal or bankruptcy: Need 2 years discharged for B-lenders
• Missed payments: Need 12 months of clean payment history
• Collections: Need to settle and show improving score

Income Documentation

Timeline to exit: 12–24 months

• Self-employed with low reported income: File 2 years of stronger tax returns
• New employment: Need 3–6 months of pay stubs for some B-lenders
• Irregular income: Build consistent deposit history

Property Issues

Timeline to exit: Variable

• Property type limitations: May require sale and purchase of conventional property
• Title problems: Resolve with lawyer
• Environmental concerns: Obtain phase 1/2 reports

Urgency-Driven

Timeline to exit: At renewal (typically 12 months)

• Took private for speed: Now have time for proper application
• Bridge financing: Complete the transaction and refinance

Step 2: Build Your Credit (If Needed)

If credit issues are the barrier, follow this month-by-month plan:

Months 1–3: Foundation

• Obtain credit reports from Equifax and TransUnion
• Dispute any errors (incorrect balances, accounts not yours)
• Settle outstanding collections (negotiate "pay for delete" where possible)
• Get a secured credit card ($500–$1,000 limit)

Months 4–8: Building

• Use secured credit card for small purchases (under 30% of limit)
• Pay balance in full every month — never miss a payment
• Keep all other payments current (utilities, phone, insurance)
• Avoid applying for new credit (hard inquiries lower scores)

Months 9–12: Strengthening

• Credit score should be improving (check monthly)
• Consider a second credit product (small installment loan or second card)
• Continue perfect payment history
• Begin documenting income changes

Target Scores

More on rebuilding credit for mortgage qualification

Step 3: Document Your Income

If income documentation was the issue:

For Self-Employed

• File complete tax returns (T1 General) showing Line 15000 income
• Build 2-year history of business revenue
• Separate personal and business bank accounts
• Keep clean books — consider professional bookkeeping
• Work with your accountant to balance tax efficiency with mortgage qualification

For Commission or Variable Income

• Save 12–24 months of pay stubs showing commission/bonus
• Obtain employment letter confirming compensation structure
• Calculate 2-year average of total compensation

For Recently Employed

• Gather 3–6 months of consistent pay stubs
• Obtain employment letter confirming permanent status
• Ensure probation period is complete

Complete self-employed mortgage guide

Step 4: Reduce Your Debt Ratios

Lenders calculate two key ratios:

Gross Debt Service (GDS) Ratio

Housing costs (mortgage + taxes + heat + condo fees) should be under:

• 39% of gross income for A-lenders
• 45% for B-lenders

Total Debt Service (TDS) Ratio

All debts (housing + car payments + credit cards + other loans) should be under:

• 44% of gross income for A-lenders
• 50% for B-lenders

How to Improve Ratios

• Pay down consumer debt (credit cards, car loans)
• Increase income if possible
• Pay down mortgage principal (if your private mortgage allows)
• Eliminate unnecessary recurring payments

Step 5: Prepare for the Transition

3 Months Before Renewal

• Contact your mortgage broker for a reassessment
• Provide updated credit report, income documentation, and property info
• Broker submits to B-lender or A-lender options
• Get approval in principle

At Renewal

• If approved by institutional lender: arrange refinance to pay out private mortgage
• Budget for refinancing costs (appraisal, legal fees — typically $2,000–$3,000)
• Savings from lower rate will recoup these costs within 2–3 months

If Not Ready Yet

If you need more time:

• Negotiate renewal with your current private lender
• Ask for rate reduction based on improved circumstances
• Set a specific 6-month timeline for next reassessment
• Continue credit and income improvements

What If You're Stuck?

Sometimes the exit takes longer than planned. Options:

Refinance to a Different Private Lender

If your current lender won't renew or charges excessive fees:

• Your broker can find alternative private lenders
• Competition among private lenders can reduce rates
• MICs may offer better terms than individual investors

Sell and Restart

If the property itself is the problem:

• Selling and purchasing a more conventional property may be the fastest path to institutional financing
• Use sale proceeds to clear private mortgage and establish fresh start
• Consider renting temporarily while rebuilding

Seek Professional Help

• Credit counselling (non-profit) for debt management plans
• Accountant for income optimization
• Licensed insolvency trustee if debts are overwhelming