Is A Secondary Mortgage a Good Investment Opportunity
By its basic definition a secondary mortgage is when traditional lenders such as banks sell off their mortgages to other investors in order to raise more capital so that they can make more home loans.
Many people, when they think of the secondary mortgage market, recall a string of events that led to many people – particularly in the U.S. – defaulting on their home loans and the market crash of 2008. And if this is your impression of secondary mortgages, then you may not consider it to be an investment opportunity for you.
But a lot has changed since the Great Recession. The turmoil of 2008 was not caused by the secondary mortgage market itself, but by the fact the fact that many institutions were lending money to those low credit scores, no down payments and no proof of income. In short, banks were lending to people who could not afford to buy homes.
Today lenders treat borrowers with less than perfect applications in a much different way and more safeguards have been put in place. Secondary mortgage notes are loans provided to home buyers that cannot meet the criteria of traditional lenders. Investors have the opportunity to buy or create their own secondary notes so that they can provide mortgages to these buyers at a higher interest rate.
While secondary mortgages should be considered an opportunity for investors with a higher risk tolerance, they can yield some good returns. Additionally, these investments are highly collateralized and they give you the opportunity to help promote home ownership in our country.
Generally speaking, borrowers wanting a mortgage are hard workers and honest people who will pay their mortgages in full each month. For whatever reason, their credit has been damaged and they view secondary mortgages as a tool they can use to get into or remain in their home. For most of them, it is a short term solution until they can repair their credit and then once again qualify for a loan from a more traditional lending institution.
Like any other kind of investment, it is important to do your homework. Some secondary mortgages are understandably going to be riskier than others. However has you know – in the investment world more risk means more potential for reward.
There are three main ways that you can invest in secondary mortgages:
- Create your own notes which you can sell to investors.
- Buy notes that are performing well and start collecting a monthly income.
- Buy notes that are not performing well and then work with the borrower to get them paying again before selling the notes to investors.
If you are considering investing in secondary mortgages – and especially if this type of investment is new to you – it is important to sit down with an industry expert. At CYR Funding, we can help you determine whether this is the right kind of investment for you. We can help you with all the due diligence right up to the final paperwork. Call us today to learn more.