Private mortgage investing means lending directly into mortgage transactions secured against real property. Review the borrower, property, loan-to-value, mortgage position and exit strategy, then decide whether the opportunity fits your objectives and risk tolerance.
Each opportunity should stand on its own. The objective is not simply to chase an interest rate; it is to understand what secures the loan, why the borrower needs the financing and how the mortgage is expected to be repaid.
Consider the amount, term, rate, mortgage position and purpose of the loan.
Review the appraisal, property type, location and existing secured debt.
Review income, credit, payment capacity, circumstances and the reason private financing is required.
Receive the required investor/lender disclosure and supporting information before deciding.
If you choose to proceed, legal documentation is completed and the mortgage is registered against the property.
A higher interest rate is not automatically a better investment. The underwriting should explain why the return is appropriate for the risk being taken.
Total secured debt is compared with the appraised property value. Mortgage position matters when assessing that equity cushion.
A first mortgage has priority over later charges. A second mortgage sits behind the first and therefore carries different enforcement and recovery risk.
Location, marketability, condition, property type and appraisal quality all matter if the mortgage ever has to be enforced.
Income, credit history, existing obligations and the circumstances behind the financing help explain repayment risk.
Refinance, sale, maturity payout or another identifiable source should form a credible repayment plan.
Rate, term, payments, fees, prepayment terms, renewal provisions and legal documentation should be understood before funding.
The first registered mortgage has priority over subsequent mortgage charges. That priority can materially affect recovery if the borrower defaults and the property must be sold.
A second mortgage is registered behind the first. The first lender is ahead in priority, so the amount owing on the first mortgage is central to evaluating the second mortgage.
The account structure depends on the investment, the rules applicable to the account and the trustee or financial institution involved. Eligibility should be confirmed before funds are committed.
Certain mortgages may qualify to be held through a self-directed registered plan when the investment and trustee requirements are satisfied.
Eligible mortgage investments may be held in a self-directed TFSA, subject to applicable tax rules, contribution room and trustee requirements.
Eligibility and administration depend on the account, investment structure and the institution acting as trustee or administrator.
Personal or corporate funds may also be used for direct mortgage lending, subject to the transaction structure and investor suitability.
For eligible registered-plan mortgage investments, we use Olympia Trust Company to facilitate the self-directed account and registered-plan administration. Account setup, investment eligibility, trustee requirements and applicable fees remain subject to Olympia Trust's requirements and the applicable registered-plan rules.
Tax treatment and registered-plan eligibility are not determined by Chartered Finance. Investors should confirm eligibility with Olympia Trust and obtain independent tax advice where appropriate.
Mortgage investments are not guaranteed. A registered mortgage provides security against property, but investors can still experience delays, enforcement costs, loss of interest and loss of principal.
Missed payments can require collection or enforcement and may interrupt expected cash flow.
An appraisal is an opinion of value at a point in time. Actual sale proceeds can be lower, particularly in a forced-sale environment.
A mortgage may not be readily saleable or repayable before maturity. Repayment can also be delayed beyond the original term.
Legal fees, property costs, arrears and other expenses can reduce the amount ultimately recovered.
Mortgage position and other claims against the property affect where an investor stands if enforcement occurs.
When principal is returned, another suitable mortgage opportunity may not immediately be available on similar terms.
These examples are purely illustrative and are not current investment offerings. They show the type of information an investor should consider when comparing mortgage opportunities.
This example has a lower LTV and first-position priority, but the borrower, property, repayment plan, documents and all other risks would still need to be reviewed.
This example leaves equity behind the combined mortgages, but the first mortgage has priority. That changes the risk and must be considered alongside the contractual return.
Tell us about the amount you are considering, whether the funds are registered or non-registered, your investment experience, objectives and risk tolerance. From there, we can discuss how direct private mortgage opportunities are evaluated and what information you should expect to review.
