Are you one of the many Canadians that is getting to retirement age? Do you wish you had been able to save up and invest more for your retirement, but various circumstances have left your nest egg feeling a little small? Investing in private mortgages may be one way that you can beef up your retirement income. Since the federal government introduced the mortgage financial stress test at the beginning of 2018, more and more Canadians have been turning to private lenders. 

What is a Private Mortgage? 

Private mortgages are alternative loans that prospective homeowners turn to when they do not qualify for a mortgage with a traditional lender such as a bank. Sometimes the reason is poor credit, but often it is not. Other reasons that people may choose private mortgages include: the type of property does not qualify for a traditional mortgage; they are self-employed or new to Canada and therefore cannot prove their income; or they haven’t saved enough of a down payment for the home they want.

Private lenders generally invest in mortgages by working with mortgage brokers to find investment opportunities that are within their risk tolerance. In most cases to invest in a private mortgage, you will need at least $100,000 cash, and you can expect between 8-12% interest on your investment. And that is well above what most people are currently getting from their stocks and mutual funds! 

What are the Risks? 

Like any type of investment, private mortgages are not without their risks. But at CYR Funding, we do our best to ensure that those risks are minimized. First, we make sure that both the property and all the documentation are inspected to protect you against fraud. Once all the documents are signed, we then register your mortgage on the property title. 

The level of risk will also depend on something call the Loan to Value (LTV) ratio. This equals the value of the mortgage divided by the expected sale price of the property. So, if the mortgage is $800,000 and the market value of the home is $1 million, then the LTV is 80%. 

If the homeowner defaults on the mortgage, the property can be sold to recover the lender’s investment. If the LTV is 80% or more, the private mortgage is a riskier investment because it is less likely that a sale would be able to recoup the original investment once all the legal fees are taken into consideration. 

What are the Benefits?

Most private lenders do see a good return on their investments. This typically comes in the form of monthly mortgage payments made by the home owner. The higher the perceived risk of the particular mortgage, the higher the interest payment typically is. 

Generally, mortgage investments are considered a safe form of investment because homeowners want to remain in their homes and are therefore committed to making their regular mortgage payments. 

At CYR Funding, we are experts at pairing private lenders with potential homeowners. If you are interested in learning more about investing in private mortgages and discovering if this opportunity is right for you, then contact us today.