Investing in Mortgages
Many people with savings have a similar problem, the money that you presently have is in GIC’s or sitting in a bank account making around 1 – 2% interest annually. Even if you have $100,000.00 invested you will only get $1000.00 to $2,000.00 per year, which is very close to the present inflation rate, so your money is not really growing. Private mortgage investing allows the lender to charge a higher interest rate for the higher level of risk that they are taking. Every mortgage is different but the general range an investor could receive for interest rates is from 6% to 12% depending on the level of risk. The amount of money required for a loan can range from $20,000.00 up to $1,000,000.00. The average loan is around $150,000.00 for a first mortgage and around $40,000.00 for a second mortgage.
Monthly Cash Flow
Most people investing in mortgages are looking for mortgages that pay a monthly income. The security provided by the property results in a lower level of risk when compared to other unsecured loans. The homeowner has tremendous incentive to ensure that the private investor gets paid every month. This results in a very stable monthly cash flow to the individual investor. Our mortgage brokers will gather all the pertinent information related to the property such as a title search, any outstanding liens, credit score of the owners, property insurance and an independent appraisal of the property. Based on this information our mortgage brokers determine the credit worthiness of each mortgage. All this information is then presented to a private mortgage investor who can then determine if a particular loan has the correct risk reward ratio for their investment.
Risk
Private mortgage investing allows you to choose where you put your money; first or second mortgages. First mortgages are less risky and will provide a good rate of return on your investment. Investing in first mortgages is an excellent strategy for people who want a relatively safe investment with a steady monthly income. People who want to invest in second mortgages must be willing to take on a higher level of risk but will also get a higher rate of interest. As a general guide a first mortgage will not exceed a total loan to value (LTV) ratio of 75%, most second mortgages have a LTV ratio of between 75 to 85%.
Default
One of the biggest advantages of directly investing in mortgages is that you have secured your money against a tangible asset such as a home or building. The amount of money owing to the private investor will be registered on the property title in case of any default. The level security provided by the asset will reduce the risk associated with the loan. In situations where the loan goes into default our broker’s will provide consultations services to you. We can advise you of the various steps that people investing in mortgages need to take to protect their investment. Loan defaults are not a common occurrence and our experience in handling these situations can make the process go fairly smoothly. All legal costs and other expenses that the investor pays can be recouped when the “power of sale” is completed.