Private Mortgage Investment
What is a private mortgage investment?
A private mortgage is an investment by private investors (lenders) funding a real estate transaction instead of an institution like a bank or trust company. Like a bank, the investors receive a mortgage from the borrower as security for their investment. The borrower’s property is used as collateral for the loan.
How does it work?
Once the lender(s) and the borrower have mutually agreed to a specified interest rate and the terms of the mortgage; all documentation, security registration and disbursement of funds are handled by both party’s representing lawyer, just like a conventional bank mortgage. The investor usually assigns its own appointed independent appraiser to access the value of the property to ensure the actual market value before the transaction is completed.
What is the minimum and maximum amount of investment required?
Usually the minimum amount is $25,000 and there is really no maximum amount depending on the property.
How is it different from other investments?
Having the borrower’s real estate as security on an investment is a unique advantage. Unlike stocks or mutual funds, mortgage investments offer stability and consistent returns.
Real estate values are much less volatile than the stock market and a mortgage contains a pre-determined interest rate so that an investor knows what return to expect; each and every month.
What kind of return can I expect?
Contact us for more details.
How do I get paid?
Monthly income is generated to the investor by interest payments (without principal) from the borrower and is usually paid monthly.
When the mortgage matures, usually within 12-24 months, the original principal is returned to the investor upon maturity of the contract.
Why doesn't the bank do it?
Borrowers usually turn to private lenders for a number of different reasons:
- speed of closing the transaction,
- short term or bridge financing needed, or
- borrower wishes to avoid mortgage insurance premium,
- borrower wishes to avoid expensive prepayment penalties for refinancing,
- non sufficient down payment,
- new citizenship status and can not qualify through conventional lenders…etc.
What are the risks to me and how am I protected?
Private mortgage lenders have the same legal recourse and security as the banks do. Your investments are backed by real estate Located in the Greater Toronto Area. As a guideline, our private mortgages do not exceed the loan to value of 80% to 85% of the appraiser established market value of the property.
What happens if the borrower defaults on the mortgage?
In the case of a default, Newbridge would provide consultation to the investor, and help the investor take legal action against the borrower [very much like the Banks] by putting the property under POWER OF SALE or FORECLOSURE.
All legal cost and disbursements incurred can be recouped through the proceeds from the power of sale. Under such circumstances, the lenders can recover the initial capital investments, some interest, and reasonable cost from the proceeds of the sale of the property.
Are mortgage investments right for me?
No one can answer this question for you. We can, however, share with you the profile of the typical mortgage investor to help you decide.
A good candidate to invest in a mortgage is someone who is looking to maximize their returns without subjecting their money to unnecessary volatility and uncertainty.
They want an asset, in this case real estate, backing their investments. They are not looking to hit a "home run" but instead want stability and a good consistent return.
They are happy to trade a predictable return for less volatility and uncertainty. They may need or would like the option to take monthly income.
Finally, they want to keep their options open by not locking up their money for a long time.
Does this sound like you?
If so, then you should learn more by contacting our professional advisors.