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Tuesday, October 22, 2013

Private Mortgages - Are They Good Investments To Make Me Money?


  With interest on bank saving accounts yielding little return many folks hear others talking about how they are getting high returns from investing their money in private mortgages. You look at your saving accounts and returns and begin to wonder - is this something I should look at?
  You wonder why would a person not go to a bank for their mortgage? Sometimes good people who have worked to keep their credit in good standing run into problems:
  - a person loses their job and needs the mortgage while they are between jobs
  - a person has a recent bankruptcy, consumer propsal or collections and regular lenders will not look at 
    them for at least 2 years

  - a mortgage is up for renewal and they do not qualify for another one because the debt level is too high
    compare to the total income
 - perhaps a divorce or separation has occured

 - a person was forced to find another job but at a lower salary

 - a lender has called the mortgage in and is foreclosing on a property and the person wants to save it

     As you can see many reasons exist why a person might turn to a private lender. This is where a private
  lender steps in to fill this niche for a determined period of time.

  There are 2 types of private lenders - an individual and a MIC group (mortgage investment corporation). As an individual you would be given all necessary information and in consultation with your mortgage agent who has brought an application to you and perhaps your lawyer or accountant  you make the final decision on whether to fund the deal or not. 

   With a MIC you give money to them to manage. Your investment will be pooled with other money and a board will decide whether to fund an application or not. Your investment will be secured by real estate. You will have to ask about any management fees.
    
   As a private investor you are not looking at traditional lender criteria such as numbers, good credit but looking at thew individual and their ability to repay, their total debts and with an appraisal in hand the equity that is in the property. You would invest in properties that you feel will be a safe investment. This could be residential only, or perhaps a rental unit, vacant land, cottage or a commercial property.

  Rates will vary depending on the risk involved. A first mortgage might be 7 - 10% while a second or third mortgage will be 10% plus.
  Terms are usually for 1 year and generally interest only. However terms could range up to 3 years.
   Approval could be in a day or two or longer depending how long it takes for all the documentation to be completed. 

 As a private lender you may choose to charge an acceptance fee if you are prepared to go ahead with approving an application. The applicant will pay all your legal fees and also pay a fee to the mortgage agent who brings you the application.

  There is one important thing to remember. If you accept the applicant and down the road the person stops payments you may be forced to put the property up sale under a power of sale. Generally a real estate firm is hired to sell the property. After a sale you may or may not get your investment back. If there are any property taxes owing, these are paid first and then all realtor and legal fees. The holder of the first mortgage is now paid followed by the second and then, if any, the third mortgage holders. Before agreeing to fund a mortgage you have to look at the equity that will be available after a mortgage is granted.


 




































1 comment:

  1. Private mortgage insurance can be a benefit to every borrower. Private mortgage insurance allows low income borrowers--or borrowers who do not have a large amount of readily available income--the chance to purchase a home when they can only afford to put down a very small percentage on their purchase.
    best mortgage rates ontario

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