A borrower, Julian, a new immigrant in Calgary, is self-employed and needs a $450,000 mortgage to purchase his first home. Due to his limited credit history and recent self-employment, he cannot qualify with an A-lender. His broker suggests a private mortgage with a 1-year term. What is the most critical 'exit strategy' component the broker must establish and document with Julian?

Question: A borrower, Julian, a new immigrant in Calgary, is self-employed and needs a $450,000 mortgage to purchase his first home. Due to his limited credit history and recent self-employment, he cannot qualify with an A-lender. His broker suggests a private mortgage with a 1-year term. What is the most critical 'exit strategy' component the broker must establish and document with Julian?

Answer options: ✅ A clear, practical plan for Julian to improve his credit, establish consistent income documentation, and transition to institutional financing at the end of the private mortgage term.

• A guarantee from the private lender that they will automatically renew the mortgage for another year at the same rate.
• The expectation that Julian will sell the property upon completion of the 1-year term if he cannot qualify for an A-lender.
• Confirmation that the private mortgage offers a fixed interest rate for 5 years, providing stability.

Correct answer: A clear, practical plan for Julian to improve his credit, establish consistent income documentation, and transition to institutional financing at the end of the private mortgage term.

Explanation: For short-term private mortgages, particularly for borrowers with qualification challenges, establishing a clear and achievable exit strategy is crucial. This involves outlining steps (e.g., credit improvement, income verification) to enable qualification for institutional financing upon maturity, as part of the broker's suitability obligations under RECA.