Short answer
You exit by fixing the specific thing that made a bank say no the first time, then documenting it clearly enough for a new lender to approve you conventionally. That usually means clean payment history on the private mortgage itself, a repaired credit profile, a completed tax year, or finished work on the property.
The exit is not automatic. It has to be planned from the day you sign, not the month before your term ends.
Why the exit is the entire point of a private mortgage
A private mortgage is priced as short-term, higher-cost bridge financing, not as a long-term way to own a home. A private mortgage that never exits is not a bridge, it is a slow transfer of your equity to fees and interest, term after term.
Every reason a bank declined you the first time is a specific, usually fixable problem. The exit plan is simply the work of fixing that specific thing on a timeline your private term allows for.
What typically has to change, by reason for decline
If you were declined for unverifiable self-employed income, the fix is a completed tax year that documents sufficient income, tied to your filing cycle rather than a fixed number of months. If you were declined for bruised credit, the fix is clean payment history and reduced revolving balances, commonly twelve months or more of consistent, on-time payments.
If you were declined for arrears or a recent default, the fix is time and a clean record since the default was cured, and how much time varies by lender policy. If you were declined because of property condition, the fix is completing the work and having the property appraise conventionally, which takes as long as the work itself takes. Our Alberta private mortgage guide sets out this same breakdown in full, alongside the pricing that applies while you are in a private mortgage.
Two habits that make the difference
Never let the private mortgage itself go into arrears while you work on the exit. A late or missed payment on the very loan meant to prove you are creditworthy again undermines the entire plan.
Start the refinance conversation with your broker at roughly the midpoint of the term, not near the end. Lenders need time to review documents, order an appraisal, and process a full application, and starting late can force a costly renewal you did not plan for.
What renewing instead of exiting actually costs
If the underlying issue has not resolved by the end of the term, most private lenders will discuss a renewal or an extension rather than default, usually for a further fee. Read the terms of any renewal or extension clause before you sign the original loan, not after you need it, so you know what a delay actually costs.
Read the full guide for Private Mortgage Lending in Alberta or Private Mortgage Lending in Ontario, where typical ranges for rates, lender fees, broker fees, loan-to-value, and term, including renewal and extension fees, are set out in full. Every figure varies by file and none of them is a quote.
Check the prepayment terms before you refinance out early
If you manage to fix the underlying issue faster than expected, confirm your prepayment terms before paying the private mortgage out early. Some private mortgages carry a minimum interest period, meaning an early payout can still cost a portion of the interest that would otherwise have accrued over the full term. Your lawyer can confirm this from your specific mortgage documents.
Frequently asked questions
How soon can I refinance out of a private mortgage?
As soon as the specific issue that caused the original decline is genuinely resolved and documented, which can be before the term ends. Start the conversation with your broker as soon as you believe that point has arrived.
Will refinancing out require a full new application?
Yes, a refinance into an A-lender is a full application, including a new appraisal in most cases. Treat it with the same preparation as your original mortgage application.
What if the issue has not resolved by the end of my term?
Most private lenders will discuss a renewal or extension, usually for a further fee, rather than moving straight to default. Speak to your broker well before the term ends so you understand the options and their cost.
Does staying in a private mortgage longer than planned hurt my credit?
Not on its own, provided payments are made on time. On-time payments on a private mortgage build exactly the history an A-lender wants to see, while missed payments do the opposite and remove your best evidence for the exit.
