David and Michelle, a married couple in Mississauga, Ontario, have been homeowners for 12 years. Due to unexpected job loss and medical expenses, they missed five consecutive mortgage payments on their home, worth $850,000.
Their lender issued a Notice of Sale, initiating the Power of Sale process, which meant they were at risk of losing their home. The outstanding balance on their first mortgage was $550,000, and they also owed $40,000 in credit card debt due to financial struggles.
They tried to negotiate with their bank, but the lender was unwilling to modify their loan or provide additional time. Their credit score had dropped to 540, making it impossible to refinance with a traditional bank or even a “B” lender.
How a Private Mortgage Helped
Since David and Michelle had built up significant home equity, their mortgage broker arranged a private mortgage to stop the Power of Sale process and provide financial relief.
✅ Loan Approved: A private lender provided a $620,000 first mortgage (73% Loan-to-Value), covering their existing mortgage and outstanding debts.
✅ Interest-Only Payments: To keep monthly payments manageable, the mortgage was structured with interest-only payments at 9.5% for 1 year.
✅ Fast Approval: The private mortgage was approved in 7 days, preventing the bank from proceeding with the Power of Sale.
✅ Debt Consolidation: The loan also included $40,000 to pay off high-interest debts, improving their financial situation.
✅ Legal Fees & Penalties Covered: The mortgage included funds to cover legal fees and penalties from the bank, ensuring a smooth transition.
The Exit Strategy
Because private mortgages are short-term solutions, David and Michelle needed a plan to transition back to a lower-cost mortgage:
- Rebuilding Credit: They consistently made payments to improve their credit score, targeting 650+ within 12 months.
- Stable Employment: David secured a new full-time job, and Michelle took on extra contract work to increase household income.
- Refinancing with a “B” Lender: After 12 months, they qualified for a B-lender mortgage at 6.5% interest, reducing their monthly costs.
- Transitioning to a Prime Lender: After another 2 years, their credit score improved further, allowing them to refinance into a 5-year fixed mortgage at 4.2% with a traditional bank.
Final Outcome
- Without a private mortgage, David and Michelle would have lost their home in a Power of Sale, leaving them with damaged credit and limited housing options.
- With a private mortgage, they avoided eviction, paid off high-interest debt, and transitioned back to traditional financing.
- Long-Term Savings: Their home appreciated to $900,000, giving them more equity, which helped them refinance more easily.
Key Takeaways
- A private mortgage can stop a Power of Sale, allowing homeowners to regain control of their finances.
- Lenders focus on home equity rather than credit scores, making it possible to qualify despite financial struggles.
- An exit strategy is essential—borrowers must plan for refinancing or selling to transition out of private lending.
Summary
Facing financial hardship due to job loss and medical expenses, David and Michelle in Mississauga missed five mortgage payments, triggering a Power of Sale on their $850,000 home. With a low credit score of 540, traditional lenders refused to help, but a private lender approved a $620,000 first mortgage at 9.5% interest, covering their existing mortgage, credit card debt, and legal fees. This quick financing prevented the forced sale of their home and provided debt relief. Over the next three years, they rebuilt their credit, secured stable employment, and refinanced with a B-lender at 6.5%, eventually qualifying for a prime mortgage at 4.2%. This case highlights how private mortgages can act as a lifeline for homeowners in financial distress, helping them retain homeownership while transitioning back to affordable financing.
