Mortgages represent one of most common investments in the world - by banks and institutional lenders. Banks like mortgage investing for the same reasons that you probably will. Good return on investment, and relatively lower risk than many alternatives.

Generally, most private mortgages are considered "equity" mortgages, which basically mean that they lean more on the value of the real estate than on the general credit worthiness of the borrower. However, the better the credit score of the borrower and the borrower's cash flow position, the lower the interest rate will be, subject to the mortgage investment marketplace and the Loan to Value of the mortgage investment. Typically second mortgage interest rates currently range from a low of 10% to a high of 15%, depending on a number of factors including geographic location of the property, loan to value expressed as a percentage, use of the property either as a rental or homeowner occupied asset, etc.

More experienced investors may choose higher risk mortgages, as the investor has had more background in handling an occasional NSF cheque, or isn't concerned about perhaps having to foreclose on the property to recover their investment. Their desire for a higher rate of return balances the higher risks involved. As long as the investment in a mortgage is made with reasonable parameters there is little or no risk of losing all your money, but you might have to wait to get paid at the higher risk levels. Even within the mortgage investment world there are additional ways to reduce your risk of loss:

• Mutualisation of mortgage risk – by investing in a mortgage pooling arrangement, (like a Mortgage Investment Corp.) decreases your risk by spreading it out over a large number of second mortgages. It also slightly reduces your net returns because typically MICs invest in a mixture of lower risk first mortgages and some higher risk seconds and charge the investors for the costs associated with administration.
• Investing your money in a number of smaller mortgages instead of one large mortgage. This is the method preferred by most small mortgage investors, since the more mortgages represented in your portfolio, the less likely you are going to find yourself with more than more of them not performing at any given time.

Ultimately, investing in mortgages can be relatively low risk, and mostly requires that you ask suitable questions to determine whether what you are investing in is a lower, medium or higher risk mortgage. As your broker I'm most interested in maintaining your business, and reinvesting your money when it comes out of a mortgage at the end of the term of the mortgage. This will only happen if you are satisfied with the outcome of the processes.

It is my job to make sure that you always have full disclosure of any relevant information about a potential investment in a mortgage. It's also my job to make sure that your mortgage is set up properly through a qualified legal professional. Once you have invested in a few mortgages, much of what's written above will seem self-evident and hardly worth mentioning. Most of my investors review the mortgage documents I send, decide to invest or not based on their own assessment of their risk comfort level, make the investment, and then simply collect the payments until the mortgage term expires, and then repeat the process as necessary.

Any questions, please contact me!