Refinancing a Private Mortgage: Getting In, Getting Out and What It Costs
"Refinancing a private mortgage" means one of two things. Either you're refinancing with a private lender because a bank won't refinance you, or you're refinancing out of a private mortgage back to a bank or B lender. Both are common, and the second should always be the plan behind the first. Here's how each works, with the numbers.
Key takeaways
- A private refinance replaces your mortgage (or adds a second) based on equity, not bank debt ratios — at private rates of about 7% to 15%.
- Refinancing out of private lending usually needs repaired credit, documented income and enough equity for a bank or B lender — commonly up to 80% of value.
- Line up your private maturity with your first mortgage's renewal to refinance everything at once without a penalty.
- Budget for exit costs: payout and discharge fees, legal fees, an appraisal and any prepayment charge.
What is a private mortgage?
A private mortgage is a loan on your home from a lender that isn't a bank or credit union — an individual, a private lending company or a mortgage investment corporation. Private lenders approve on equity and the property, usually for one year, interest-only, at higher rates than banks. That makes them useful for a refinance a bank has declined, and expensive to stay in.
What is a second mortgage?
A second mortgage is registered behind your first. In a refinance, you choose between:
- A private second — keep your existing first mortgage and borrow only the extra money privately; or
- A private first — pay off your existing mortgage and replace the whole balance with one private loan.
If your current mortgage has a low rate or a big penalty, the second is usually cheaper. If it's maturing, in arrears or the lender won't renew, a private first makes more sense. Our refinance page and refinance calculator help compare.
Why are private mortgage positions important?
Position decides the order of repayment and the price. A first-position private loan is cheaper per dollar; a second is pricier but leaves your low-rate first alone. When you refinance out, position matters again: your new lender will pay out every private charge and take first position itself, so the payout figures for each charge — including any fees and prepayment interest — must be ordered before closing.
Who lends private refinance mortgages — and who refinances you out?
Into private: mortgage investment corporations, private lending companies and individual investors arranged through a licensed brokerage.
Out of private:
- B lenders (alternative lenders such as trust companies) — qualify on income, accept bruised credit and self-employed income more readily, usually amortizing over 25 to 30 years, with a modest lender fee.
- Credit unions — provincially regulated, with their own lending rules.
- Banks and monoline lenders — the lowest rates, once your credit and income fully qualify, including the stress test.
How does the payment work when you refinance a private mortgage?
Inside a private mortgage, payments are interest-only. The goal of refinancing out is to swap that for an amortizing payment at a lower rate. Illustration: a $780,000 home with a $400,000 bank first (payment about $2,279) and a $100,000 private second at 12.99% (interest-only payment $1,054.32).
| Monthly payment | What happens to the balance | |
|---|---|---|
| Today: bank first + private second | about $3,333 | Only the first is going down; the $100,000 second never does |
| Refinance to one $500,000 B-lender mortgage at an assumed 6.49%, 25 years | about $3,346 | All $500,000 amortizes; no private renewal fees |
| Refinance to a $500,000 bank mortgage at an assumed 4.49%, 25 years | about $2,765 | All $500,000 amortizes at the lowest cost |
The rates in the last two rows are assumptions to show the mechanics; your actual offer depends on your file. At 64% loan-to-value, this borrower is well inside the 80% refinance limit that most lenders apply.
What's the term of a private refinance mortgage?
Usually 12 months. That's the window to fix what sent you private — rebuild credit, file overdue tax returns, document self-employed income or sell a property. Ask whether the mortgage is open after a few months and what the prepayment charge is; you don't want to pay three months' interest because your bank approval came early.
What are the criteria to get approved?
For a private refinance: typically up to 75% to 80% loan-to-value on a first, about 75% combined on a second; an appraisal; evidence you can make the payment; clear title; and a realistic exit.
To refinance out of private:
- Credit cleaned up — collections paid, no new late payments, a few months of on-time history.
- Income a B lender or bank will accept — often two years of tax returns and Notices of Assessment for self-employed borrowers.
- Equity: refinances are generally capped at 80% of value, all mortgages combined.
- For federally regulated lenders, passing the stress test at the greater of your contract rate plus 2% or 5.25%.
- Payout statements from each private lender, with any fees and prepayment interest.
Why are private refinance rates higher than traditional mortgages?
A private lender refinances borrowers the banks have declined, uses investors' money rather than deposits, can't insure the loan and has a one-year window to earn its return. That's why the exit matters: each year in private lending costs several percentage points more than a bank or B-lender mortgage on the same balance.
What are the pros and cons of refinancing with — and out of — a private mortgage?
| Pros | Cons |
|---|---|
| A private refinance can stop arrears, collections or a power of sale quickly | Higher rates and new lender fees |
| Consolidating debt can cut monthly payments sharply | Interest-only payments don't reduce the balance |
| Refinancing out moves you to an amortizing, lower-rate mortgage | Exit costs: legal, appraisal, discharge and possible prepayment charge |
| One payment instead of several | If the exit fails, renewal fees add up |
Sources
This article is general information, not financial or legal advice. Rates shown for B-lender and bank refinances are assumptions for illustration only. Private rate and fee ranges are typical of 2026 and vary by lender and file. Mortgage financing is subject to lender approval.
Frequently asked questions
As soon as you qualify elsewhere and your private mortgage allows prepayment. Many borrowers do it at the 12-month maturity; some sooner if their contract is open after a few months.
Yes, if your current lender won't renew or another offers better terms. You'll pay a new lender fee, legal and appraisal, so compare that with your current lender's renewal fee.
Often, yes. B lenders regularly refinance borrowers out of private mortgages once credit has stabilized and income is documented.
Most lenders cap a refinance at 80% of the appraised value, including every mortgage being paid out.
Plan your exit from private lending
We'll check what a B lender or bank needs from your file, line up the timing with your maturity and show the cost of each option.