Should you become a private mortgage lender?
Matrix Mortgage Global – Should you become a private mortgage lender?
If you’ve ever been looking for a place to invest your money, chances are that you’ve had people tell you that you should invest in real estate. Perhaps you even know some people who have done very well for themselves with rental properties. But what if being a landlord isn’t for you? If you are not skilled in “handyman” work or in dealing with difficult people, it can have some real drawbacks. An alternative is investing in mortgages. Becoming a private mortgage lender allows you to gain many of the advantages of being a landlord, without many of the hassles.
A number of changes in the economy from tighter regulations on credit to a new financial stress test that federally regulated lenders must now impose on mortgage borrowers, have made getting traditional mortgages more challenging for many Canadians. These same regulations however have also created opportunities for those who wish to invest in private mortgages.
Many people, when they hear the words “private mortgage”, think of risky investments with borrowers that have poor credit. And while this demographic certainly is attracted to private mortgages, they are not the only one. Private mortgages also attract other borrowers who – for very different reasons – may not be able to get a loan at a bank. These people include new immigrants, entrepreneurs, and businesses. In these cases, borrowers may have perfectly fine credit but simply cannot meet the bank’s documentation requirements.
How to start investing in private mortgages
Typically, those looking to get into private mortgages will need an initial investment of at least $100,000. Unlike traditional mortgages which can have lengthy amortization periods, private mortgages usually have interest only payments for a one year term. The ROI can be between 6 and 18% depending on the level of risk.
The biggest risk you take when investing in a private mortgage is that the borrower will default on the loan. Fortunately, this is a relatively rare occurrence because borrowers do not want to lose their homes. This is especially true in Canada where defaults on mortgages are amongst the world’s lowest.
If you decide that becoming a private mortgage lender might be for you, it is wise to work with a private mortgage company that can help ensure everything is legal and that the proper due diligence has been conducted.
At Matrix Mortgage Global, we can help you get started on this path. Call us today at 1-877-371-5293.