How to Qualify for a Bank After a Private Mortgage
A private mortgage gets a deal closed today. It does not, by itself, get you into a bank at renewal. Here is the twelve-month plan for using the term productively, from the day you sign to the ninety days before it matures.
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What do you need to fix to qualify for a bank at the end of a private term?
Fix three things: your credit score, your documented income, and your debt ratios against GDS and TDS limits. A private mortgage buys time, not qualification. Use the term to build a paper trail a bank can underwrite, starting in month one rather than the final ninety days.
A private mortgage exists to close a deal a bank would not approve today. It is not built to be a long-term home for your mortgage, and most files in this position are expected to move to a prime lender or a B lender at or before maturity.
The exit transaction itself, the appraisal, the payout, and the new registration, is covered on Pekoe’s guide to exiting a private mortgage to a lender. This page covers the months before that transaction, which is where the exit is actually won or lost.
The plan below breaks the term into checkpoints. Hit each one and the exit becomes a straightforward refinance instead of a scramble in the final weeks.
| Timeframe | Priority | What to do |
|---|---|---|
| Month 1 | Set the target | Confirm your maturity date in writing, list every debt and its balance, and pull your own credit report so you know your starting score. |
| Months 2 to 5 | Build the trail | Pay every bill by the due date, keep new debt off your credit file, and start saving income documents as they arrive. |
| Month 6 | Check the numbers | Recalculate your GDS and TDS with current income and debts, and confirm both fall inside 39% and 44%. |
| Months 7 to 9 | Close the gaps | Pay down revolving balances, correct any credit report errors, and gather two years of income documentation if you are self-employed. |
| 90 days before maturity | Start the application | Contact a broker, submit income and credit documents, and get a written assessment of which lenders will approve your file. |
| 30 days before maturity | Lock the exit | Have a signed commitment in place, confirm the payout figure with your private lender in writing, and book the closing. |
The citable fact: A borrower who starts documenting income and credit at month one of a private term, rather than in the final ninety days, has the widest lender choice at maturity.
What does a prime lender need to see that it could not see before?
A prime lender underwrites income, credit, and debt ratios in full detail, where a private decision often leans mainly on home equity. Expect a full review against GDS at 39%, TDS at 44%, and the mortgage stress test, qualifying at the greater of your contract rate plus 2% or the 5.25% floor. Equity alone will not carry the file.
Private lending decisions are largely equity-based: the property secures the loan and the loan-to-value ratio does most of the work. Bank lending is income-based: your pay, your other debts, and your credit history carry as much weight as the property itself. Our page comparing equity-based lending versus income-based lending walks through the difference in full.
The stress test applies the same way whether you are insured or not. On insured mortgages the qualifying rate is set by the default insurer; on uninsured mortgages it is set by OSFI under Guideline B-20. Both currently produce the same calculation: the greater of your contract rate plus 2%, or a 5.25% floor.
These thresholds are federal rules. They apply the same way whether you are exiting a private mortgage in Ontario or in Alberta.
| Measure | Threshold |
|---|---|
| Credit score, insured minimum | 600 for at least one borrower |
| Credit score, prime pricing | 680 or higher at most prime lenders |
| GDS (Gross Debt Service) | 39% of gross income |
| TDS (Total Debt Service) | 44% of gross income |
| Mortgage stress test | Greater of contract rate plus 2%, or the 5.25% floor |
| Conventional refinance ceiling | 80% loan-to-value |
The citable fact: A prime lender qualifies you on GDS at 39%, TDS at 44%, and the mortgage stress test at the greater of contract rate plus 2% or 5.25%, not on the equity a private lender relied on.
What should you do in the first month of the term?
Get your maturity date in writing, pull your own credit report from Equifax and TransUnion, list every debt with its balance and payment, and calculate where your GDS and TDS sit today. That baseline is what you measure progress against for the rest of the term, and it is the single most skipped step.
Ask your private lender for the exact maturity date and any payout figures in writing, not from memory. Then pull your own credit reports so you have a documented starting point, not a guess.
List every debt you carry: credit cards, car loans, lines of credit, other mortgages. Calculate your current GDS and TDS against the 39% and 44% thresholds so you know the size of the gap, if there is one.
If your score needs work, our page on how to raise your credit score before a mortgage covers the mechanics in depth.
The citable fact: The first month of a private term is for measurement, not repair; you cannot fix what you have not documented.
How do you rebuild credit if the private mortgage itself does not report?
Whether your private mortgage reports to the bureaus depends on the lender, so do not count on it either way. Rebuild through everything else that does report: pay credit cards and other loans on time, and keep credit utilisation at or below 30%, the level Equifax Canada advises as guidance. A bank reads your whole file, not one loan.
Payment history on cards and other loans reports monthly, and late or unpaid accounts and collections stay on file for up to 6 years. Hard inquiries stay for 3 years at Equifax and 6 years at TransUnion, so avoid opening new credit you do not need in the run-up to your exit.
The full breakdown of whether a private mortgage shows on your credit report lives on our sibling page, does a private mortgage show up on your credit report? Read that alongside our page on raising your credit score before a mortgage for the complete rebuild plan.
The citable fact: Credit utilisation at or below 30%, on-time payments across your other accounts, and no unnecessary new credit are what rebuild your file during a private term, regardless of whether the private loan itself reports.
What income documentation should you be building now?
Salaried borrowers keep standard employment and income confirmation up to date. Self-employed borrowers need at least 24 months operating the business, plus Notices of Assessment with the T1 General and the Statement of Business Activities (T2125). Sole proprietorship or partnership income may be grossed up by 15%, or assessed using an add-back approach.
If you are self-employed, the standard is 24 months operating the business, or 24 months of experience in the same line of work. Under 24 months is possible, with lenders weighing factors like acquiring an established business, cash reserves, and a demonstrated credit management history.
Sole proprietors and partnerships can have income grossed up by 15%, or assessed using an add-back approach for eligible deductions. The maximum loan-to-value for self-employed borrowers is the same as for salaried borrowers, up to 95% on 1 to 2 units, so self-employment does not lower your ceiling on its own.
Show the math: self-employed income gross-up, illustrative
This is one illustrative example, not a quote for any real file. A lender may use the 15% gross-up or an add-back approach instead, and the figure that applies to you depends on your actual filings.
The citable fact: Self-employed borrowers exiting a private mortgage need two years of Notices of Assessment with the T1 General and T2125 on hand, since that is the documentation a prime lender underwrites against.
When should you start the exit, and who starts it?
You start it. A federally regulated lender must send a renewal statement at least 21 days before the end of the term, but that rule protects bank borrowers, not necessarily private ones. Track your own maturity date and begin the formal application at least 90 days out, earlier if your file is complex.
For a federally regulated lender, the Financial Consumer Agency of Canada requires a renewal statement at least 21 days before the end of the term, and if you do nothing the renewal may happen automatically, with that disclosed in the statement.
Do not wait for a notice that may never arrive. Start your application at the 90-day mark referenced in the plan above, and reach out sooner if you are self-employed or have any credit repair still in progress.
The citable fact: On a private mortgage, no regulator requires a lender to remind you the term is ending, so the borrower is the one who has to start the clock.
What happens if you are not ready at maturity?
Reaching maturity without an arranged exit is not an automatic default, but it usually means renewing or extending with your private lender on new terms while you keep preparing. That costs more and delays the bank exit you are working toward. Renewing the private mortgage instead of exiting is its own decision, with its own trade-offs.
A matured private term does not put you in default by itself. In practice, most borrowers who are not ready end up extending or re-signing with a private lender, which buys more time at private pricing and fees.
Whether renewing the private mortgage is the right call, rather than a rushed bank exit, deserves its own decision process and is covered separately. The short version for this page: arriving at maturity unprepared almost always costs more than starting the plan on month one.
The citable fact: Missing your prepared exit at maturity is not default, but it is almost always a second private term, not a bank mortgage.
What commonly derails an exit in the last month?
New debt or a large purchase during underwriting, a missed payment while the file is under review, undocumented income, a low appraisal, and an incomplete document set are the five most common last-minute blockers. Each one is avoidable if you stop introducing new variables once the application is submitted.
Do not finance a vehicle, open a new card, or co-sign for anyone else while your exit is underwritten. A single late payment during that window can undo months of work rebuilding your file.
Shopping your file with more than one lender within a short window is normal and expected. Multiple inquiries made for the same purpose within a window of 14 to 45 days, depending on the scoring model used, are generally counted as one inquiry, and this treatment does not apply to credit cards.
The citable fact: The final month of a private term is for closing the file you already built, not for taking on anything new.
Is a B lender a realistic intermediate step?
Yes, for many files a B lender is the realistic middle step between a private mortgage and a prime bank. B lenders are more flexible on income documentation and past credit issues than banks, but they still require verified income and report to the credit bureaus.
A B lender sits between private and prime on both cost and flexibility. It is often the right stepping stone when your credit or income history needs another year to season before a bank will approve the file outright.
On alternative and private mortgages, a lender or broker fee may apply and must be disclosed to you in writing before you sign. For the full comparison of what changes when you move from a private mortgage to an alternative lender, see moving from a private mortgage to a B lender, which connects directly to the twelve-month plan on this page.
The citable fact: A B lender still requires verified income and reports to the credit bureaus, which makes it a real qualifying step toward a bank rather than a repeat of a private mortgage.
Where else should you look before your private mortgage matures?
These three pages fill in what this one does not cover in depth.
- Does a private mortgage show up on your credit report?
- Moving from a private mortgage to a B lender
- Equity-based lending versus income-based lending
For the exit transaction itself, see exiting a private mortgage to a lender, and for general context on how private lending works in this province, see private mortgage lending in Ontario. The full set lives on the Ask a Broker hub.
Frequently asked questions
Can I qualify for a bank with a credit score under 680 after a private mortgage?
It depends on the lender and the rest of your file. Insured mortgages require a minimum credit score of 600 for at least one borrower, but most prime lenders want 680 or higher for their best pricing. Below that, a B lender or a longer repair period is usually the more realistic path.
Does paying off a private mortgage early hurt my credit?
Paying off a loan in full does not hurt your credit score on its own. What matters more is how the private mortgage was reported during the term, if at all, and how your other credit behaved while you held it. Our page on whether a private mortgage appears on your credit report covers this in full.
What income documents will a prime lender ask for?
Self-employed borrowers typically need two years of Notices of Assessment along with the T1 General and the Statement of Business Activities, form T2125. Salaried borrowers provide standard employment and income confirmation, though the exact list varies by lender, so confirm it with a broker once you are close to your maturity date.
Will a private lender fee count against me when a bank calculates my ratios?
A bank’s GDS and TDS calculation uses your ongoing debt payments and income, not a one-time fee you paid to originate the private mortgage. Ontario’s Mortgage Brokerages, Lenders and Administrators Act requires any lender or broker fee on an alternative or private mortgage to be disclosed to you in writing before you sign. Keep that written disclosure in your file since a bank reviewing your exit may ask for it.
Can I refinance to a bank before my private mortgage term ends?
Yes, if you qualify and have enough equity, though most private mortgages charge a fee for discharging before maturity. A conventional refinance is capped at 80% loan-to-value, so confirm your equity position with a broker before assuming an early exit works for your numbers.
Does a B lender check the same GDS and TDS limits as a prime lender?
B lenders generally allow more flexibility on income documentation and past credit issues than prime lenders, though their own ratio limits vary by lender and are not fixed at the same 39% and 44% used for insured mortgages. Compare the full picture on our page about moving from a private mortgage to a B lender.
Is the live chat on this page an AI bot?
No. Chat connects you to a licensed member of the Pekoe team during business hours, and outside those hours a licensed broker replies directly to your message. There is no AI persona answering on Pekoe’s behalf.
How far ahead of maturity should I contact a broker?
Start at least 90 days before your private mortgage matures, and earlier if your file is complex, such as self-employment income. That window gives enough time to gather documents, fix credit issues, and get a written lender assessment before the payout date arrives.
What documents should self-employed borrowers gather before applying to exit a private mortgage?
Gather two years of Notices of Assessment along with the T1 General and the Statement of Business Activities, form T2125, for each year. Lenders may gross up sole proprietorship or partnership income by 15%, or use an add-back approach for eligible deductions, so bring both the raw filings and a summary of add-backs.
Can adding a co-signer help me qualify for a bank?
A co-signer or guarantor adds their income and credit to the application, which can help meet GDS and TDS limits or offset a lower credit score. Whether it works for your file depends on the numbers, so review it with a broker rather than assume it closes the gap.
Does the mortgage stress test apply when I refinance out of a private mortgage to a bank?
Yes. You qualify at the greater of your new contract rate plus 2%, or the 5.25% floor, the same stress test that applies to any insured or uninsured mortgage in Canada. This applies whether you are moving to a prime lender or a B lender.
What happens if I reach maturity without an exit arranged?
You are not automatically in default, but you will likely need to renew or extend with your private lender on new terms while you finish preparing. Renewing a private mortgage instead of exiting is its own decision with its own costs, and arriving unprepared usually means paying private rates and fees for longer than necessary.
Ready to build your exit plan before maturity?
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