Why private terms are short
Private mortgages are designed as bridge financing, meant to solve a temporary problem rather than serve as a long term solution. Shorter terms let the lender reassess the situation more often and give the borrower a natural checkpoint to move to cheaper financing once their circumstances improve.
Matching the term to your plan
If you expect to sell the property or refinance with a bank within a year, a shorter term with lower total fees may make sense. If your timeline is uncertain, a slightly longer term avoids the cost and hassle of renewing or refinancing again too soon.
- Selling soon: shorter term
- Rebuilding credit: 12 to 24 months
- Uncertain timeline: build in buffer
Renewal considerations
If you reach the end of a private mortgage term without a plan to pay it off, the lender may offer a renewal, often with a renewal fee attached. Planning ahead, ideally starting the search for permanent financing a few months before maturity, avoids being stuck with unfavourable renewal terms.
Prepayment flexibility
Some private mortgages allow early payout without penalty, while others include a minimum interest guarantee, meaning you owe interest for a set period even if you pay it off early. Clarifying this before signing helps you avoid unexpected costs if your situation changes faster than expected.
Frequently asked questions
- What is the most common private mortgage term length in Ontario?
- One year is very common, though six month and two year terms are also widely available depending on the lender and situation.
- Can I pay off a private mortgage early?
- Many allow early payout, sometimes with a minimum interest requirement, so it is worth confirming the specific terms before signing.
- What happens if I cannot pay off my private mortgage at the end of the term?
- Most lenders will discuss a renewal or extension, though this usually comes with additional fees, so having a backup plan is important.