How Long Should I Stay With an Alternative Lender?
Usually, only as long as you need to. Alternative financing is often most effective as a temporary solution while you fix whatever prevented you from qualifying for better financing in the first place.
← Back to Alternative Financing QuestionsThere Is No Magic Number of Years.
The right amount of time depends on why you needed alternative financing and what has to change before a bank or lower-cost lender will approve you. The objective is to solve the underlying issue and move back when the numbers and qualification make sense.
Repair Credit
If bruised credit caused the original decline, time with clean payment history may help strengthen the next application.
Reduce Debt
Paying down debt can improve debt-service ratios and make conventional qualification easier.
Stabilize Income
Self-employed or variable-income borrowers may need additional history or documentation before conventional lenders are comfortable.
Resolve Arrears
If mortgage arrears were part of the problem, rebuilding a clean mortgage payment history can be an important part of the exit strategy.
Deal With CRA Debt
Once tax debt has been resolved and the overall financial picture has improved, additional lender options may become available.
Improve the Overall File
Sometimes several issues need time to improve together before moving back to conventional financing makes sense.
You Should Know How You Plan to Leave Before You Go In.
Alternative financing should solve a specific problem. Before arranging the mortgage, we should understand what needs to happen during the term so you have a realistic path to better financing.
That exit may be a return to a bank, a move to a lower-cost alternative lender, repayment from another source or, in some cases, the eventual sale of the property.
Understand exactly why conventional financing was not available.
Know what needs to improve — credit, debt, income documentation, arrears or another issue.
Do not simply renew an alternative mortgage without checking whether better financing is now available.
Penalties, fees and the remaining term should be considered before refinancing early.
Move When the New Financing Is Actually Better.
Qualifying for another lender does not automatically mean refinancing immediately is the right decision. We still need to compare the rate, payment, fees, penalties and remaining mortgage term.
You Qualify Again
Your credit, income and debt profile now fit the guidelines of a bank or lower-cost lender.
The Savings Are Meaningful
The lower rate and payment should provide enough benefit to justify the cost of changing lenders.
The Penalty Makes Sense
If you are leaving before maturity, any discharge or prepayment cost needs to be included in the comparison.
Your File Is Stronger
A stronger application can create more lender choices and better terms than simply moving at the first opportunity.
The Timing Is Right
Sometimes waiting until maturity is more economical than refinancing several months early.
You Have Compared the Full Cost
Rate matters, but so do fees, terms, penalties, payment flexibility and the total cost of the new mortgage.
Stay Alternative Only as Long as It Continues to Serve a Purpose.
The goal is not to remain with an alternative lender for a predetermined number of years. It is to fix whatever prevented you from qualifying for better financing and move back as soon as doing so makes financial sense.
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