When this comes up
The usual triggers are a declined renewal, a mortgage called due after default, a matured private mortgage that the lender will not extend, or a separation where one party must be bought out quickly. In every case the deadline is external, which is why speed matters more than pricing.
- Renewal declined at maturity
- Mortgage called due following arrears
- An existing private lender declining to renew
- Separation or estate deadlines
- Construction or bridge financing that has run out of term
How the file is structured
A private first mortgage is registered in first position after the existing lender is discharged at closing. Terms are typically one year, interest-only, with the option to prepay some or all of the loan. Because the private lender is in first position, pricing is better than a second mortgage on the same property.
Prepaid interest
On files where income is thin, lenders often hold back several months of interest from the advance so payments are covered while the homeowner reorganizes. It reduces the net cash received but it removes the risk of an immediate default on the new mortgage.
The twelve-month plan
The private first mortgage buys a year. Use it. Clear collections, rebuild payment history, get tax filings current if you are self-employed, and get a broker working on the B lender or bank refinance three months before maturity rather than three weeks.
Frequently asked questions
- Can a private lender pay out a bank mortgage?
- Yes. The bank is discharged at closing by the lawyer and the private mortgage is registered in first position.
- Do I pay a penalty to break my current mortgage?
- If the term has matured, no. If you are breaking mid-term, the penalty is added to the payout and should be factored into the plan.
- How quickly can this close?
- A clean first mortgage on a GTA property can close in about a week once the appraisal is back and the lawyer has instructions.
Talk to a Toronto private mortgage specialist
We arrange equity-based financing across Toronto and the GTA, whether you need a first position from a private lender or a second mortgage behind the bank you already have.