Now let's look at mortgages.
You are probably
familiar with the returns that banks make on mortgages. You
see their rates posted all of the time. They may make 3-5%,
depending on the term of the mortgage.
But not all borrowers can qualify at a conventional bank. Canadian
banks have many guidelines and regulations that govern who they
can lend money to. For example, if a borrower's credit is
not good enough, or they don't earn enough income, or the property
is in an area that the bank doesn't lend in, they make be declined
for the loan or mortgage.
That is where private lenders can fill the void. A private
lender is an individual who has extra money to lend to a borrower.
(ie that could be you). Borrowers who don't qualify at a
bank are not necessarily bad risks. They may need the money
to purchase a house, or pay off some bills, or send a son to
college, or go on a vacation. The list of reasons is almost
And the security they can offer you (the private lender) is their
house (called property). And we always make sure that the
private lender is protected by insisting that the borrower can't
borrow more than 70% of the value of their house. This
protects the lender from any fluctuations that may occur in the
marketplace over the course of the next 1-2 years.
The normal term for a private lender mortgage is one year.
And the loan is usually an "interest only" mortgage, which means
that the borrower pays only on the interest component of the loan,
and none of the payments go towards reducing the principal.
So let's look at some actual numbers. Let's say that a
borrower owns a $200,000 property, and they currently have a
$100,000 first mortgage. They need 25,000 to pay off some
So you would lend them 25,000, secured and registered as a second
mortgage against the property. The term would be one year,
and you would receive a 12% interest payment every month.
That works out to 250/mo. After one year, the borrower must
pay you back the entire principal borrowed, which is 25,000, and
you have earned $3000 in interest payments.
Now that is a much better return than the bank can offer, and it's
If you would like
to explore this opportunity further, please give us a call