PRIVATE MORTGAGE LENDING
Mortgages represent one of most common investments in the world – by banks and institutional lenders. Banks like mortgage investing for the same reasons that you probably will.
-Good return on investment.
-Relatively lower risk than many alternatives.
-Private mortgage lending investments are also RRSP-eligible.
Generally, most private mortgages are considered “equity” mortgages, which basically mean that they lean more on the value of the real estate than on the general credit worthiness of the borrower. Essentially, the underlying equity is king in the private mortgage lending world. However, the better the credit score of the borrower, employment history, and the borrower’s cash flow position, the lower the interest rate will be, subject to the mortgage investment marketplace and the Loan to Value of the mortgage investment. A significant part of the mortgage broker’s work is to determine what rate of interest will attract investment by an investor, and still be within the generally market rates otherwise available to the borrowers.
Before I propose a mortgage investment I will have priced the investment based on market conditions, taking into account various risk factors that affect the cost of the money to the borrower and the rate of return to the investor. As your broker, I’m most interested in maintaining your business, and reinvesting your money when it comes out of a mortgage at the end of the term of the mortgage.
If you put your money into a bank account, there is virtually no risk of loss, but you will earn almost no interest income from it, either. At 2% your money is actually losing value every year against the Consumer Price Index and the underlying inflation rate. Government T-bills pay a little better, perhaps 3% or 4%, but using the Rule of 72 your money will double its value ever 24 years at 3% or every 18 years at 4%. While safe, it’s not exactly necessarily sensible, since the value of your money will actually decline if your rate of interest return is the same or close to inflation.
At the other end of the risk spectrum are investments in many different investments, including commodities like coal, corn or futures in metals. Those investments, when managed by skillful experts may result in being able to double your money in a few months or a year or two at the most. However, the risk of loss is extremely high. In other words you will likely lose some or all of your principle making these types of investments.
The same thing is true of investments in stocks and bonds, or even mutual funds based on stocks and bonds. Investments in the private shares of small companies may also represent a far higher potential rate of return, while appearing to be low risk at the time of investment. In general, however, all of these types of investments represent a fairly high level of risk, with various rates of return.
Contact me if you want to hear more, or if you want to become a Mortgage Investor. Remember, YOU call the shots – YOU become the bank. I want to earn a long-standing business relationship with you.
Dave Fitzpatrick – firstname.lastname@example.org – 587 437 8437 mobile