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Investing in Second Mortgages

Investing in Second Mortgages

If you are considering putting your money in the real estate market, investing in second mortgages is a vehicle that can yield higher returns than first mortgage private lending, so if you have some funds to risk, a second mortgage investment can be quite lucrative. With this possible reward, of course, comes a higher level of risk as well. As you consider whether or not to put your money into a second mortgage, take a look at some of the potential downfalls — and some of the potential rewards. Investing in Second Mortgages

Second mortgage investment risks

The primary risk that you take when investing in second mortgages is the position of your lien. When a home is sold, the first liability to be satisfied is any outstanding taxes. Then come mortgages, in the order of filing. So the first mortgage, which is generally the largest, must be paid first before the second, third and so on. In the event of a short sale, this can leave you in the lurch — consider the example of a house with $5,000 outstanding in taxes, $75,000 outstanding on the first lien and $50,000 outstanding on the second note (yours). The owner of the house is underwater and requests a short sale, which only brings in $60,000. $5,000 goes to the government, and $55,000 goes to the holder of the first mortgage, leaving $20,000 due on that one. You still haven’t gotten a dime on yours, and you don’t have an interest in the house, because you’re behind the first mortgage holder. (Second Mortgage Information – Investing in Second Mortgages)

Second mortgage investing

A creative solution to this is contacting that first mortgage holder and offering to bring that first loan current and then take it over. While the mortgage holder is not required to accept this, it is a more attractive option than foreclosure. If you have the funds on hand to bring that loan current and start making payments, you can take over the note and then either rent the house to the original owner or take it over yourself. Then you have a property of your own. This might not be as great of an outcome as getting the money back from your loan (plus interest), but it is an option when default happens.

Second Mortgage investing 101 – cont’

But what if the borrower is current on the first mortgage but is going into default on yours? It can be frustrating, because you may not be able to force a foreclosure on the basis of your own loan. These types of situations are known as “upside down liens.” If you granted a second mortgage for $25,000, but the borrower has only built up $5,000 in equity, you can’t foreclose and sell the whole Second Mortgage Investment Property for that full remaining balance.

This is usually happening for one of two reasons. If the borrower is actually current (not 30 days or 60 days in arrears) on that first loan, that means that he wants to stay in his home and has a source of money. If not, he wouldn’t be paying his mortgage payments each month. While you can eventually force your way to a short sale, it is often worth dealing with the borrower here. The likelihood is that he wants to bring your payment current as well, and he should be willing to put together an alternate payment plan. If you are willing to be a little flexible here with reporting to the credit bureaus, then you may be able to get back to current status on this loan more quickly than you think.

Another situation may be in play here, though, which is a fairly common experience for people investing in second mortgages. In this case, the borrower is working out a plan for loan modification with the first mortgage holder. At this point, you can step in and make things work out in your favor. If you think that the loan modification is a good idea because you can see that the borrower has improved his financial position (perhaps finding a new job or recovering from medical problems), you can step in and take on more of the debt. This does increase your risk, but it also increases your payoff when things turn around for the best.

If you are thinking about investing in second mortgages, give one of our experts at Amansad Financial a call or email. We will discuss your current situation and go over potential borrowers with you, tailoring a deal that will benefit you both. Follow the link below to get started Investing in Second Mortgages:

RRSP Mortgage Investing

RRSP Mortgage Investing

Using RRSP to Invest in Mortgages

One complaint that many people have about their Registered Retirement Savings Plan (RRSP) portfolios is the relatively low rate of return. One strategy that many are considering is using self-directed funds from RRSP to invest in mortgages. These are private loaned with Canadian real estate serving as the collateral for RRSP Mortgage Investing. (RRSP Mortgage Investing)

RRSP Mortgage Investments

If you are planning on using RRSP to Invest in Mortgages, Real estate is one of the more secure forms of investment out there. RRSP mortgage investments in mortgage funds allow you to diversify your risk so that your returns stay well above average.

RRSP Mortgage Investment Property

RRSP Mortgage Rules

How does it work?
When you have a self-directed RRSP account, the plan is the actual mortgage holder. This means that you’re not sitting there with the paper if the borrower(s) default. Instead of you funding one mortgage, you invest in a fund that funds many mortgages, spreading the risk out more evenly. Every month, your RRSP gets a fixed payment, tax-free. As long as you direct all of your payments back to your self-directed account, your whole profit remains tax-free. This means that you have a reliable source of income for reinvestment without having to remove from your savings or risk a tax liability. When you are eligible to collect RRSP funds, your tax bracket is likely to be much lower, which means that when you are taxed on your distributions, your tax bill will be much lower at that time. Only a trustee with National Housing Act approval has permission to administer a mortgage for RRSP funds.

RRSP mortgage canada

Today, Olympia Trust, Canadian Western Trust, Td Waterhouse, and B2B Trust are among the firms in Western Canada who have that authorization. Make sure that you form a relationship with the right trustee to get your account set up properly. Amansad Financial has the necessary contacts in those agencies to help the process run smoothly.

Are RRSP funds the only way I can invest in this opportunity?
The same rules work for Locked in Retirement Accounts (LIRAs), Registered Retirement Income Funds (RRIFs) and many other registered plans. Call Amansad Financial today, or email one of our staff, to get more information about your own particular situation.

What other rules apply to this sort of investment?
Any mortgage or interest related to real property in Canada qualifies as trust plan investment. It can be a first, second or third mortgage, as long as the holder of the plan receives a registrable interest.

What is the difference between Arm’s Length and Non-Arm’s Length?
These terms refer to the relationship between the borrower and the lender. An Arm’s Length mortgage permits RRSP holders to place their self-directed RRSP funds into a mortgage for a third party who is not a blood, adoptive or marital relation. This sort of mortgage does not have an insurance requirement, and the rates have significant latitude as far as flexibility. For a Non-Arm’s Length Mortgage, the borrower is, for all intents and purposes, the annuitant. For this to serve as a self-directed RRSP investment, insurance is a requirement, and the loan’s interest rate must be in line with rates available to that level of borrower on the market at the time of the loan.

What happens if the mortgage goes into default?
As with any mortgage, if the borrower loses the ability to make monthly payments on the mortgage loan, the lending institution handling the loan will put the mortgage into default. At that point, it begins the process of trying to collect its losses from a power of sale. However, that is not the only available solution. Give Amansad Financial a call to find out more information about the solutions available.

Is a first or second mortgage safer than a third mortgage?
The number in front of the mortgage refers to the priority of that loan at the point of sale, whether it is a real estate transaction or a foreclosure proceeding. A first mortgage is fulfilled first from the proceeds, making a second mortgage more risky by definition. This means that interest is higher on a second mortgage. As an investor, this means that your rate of return is higher, but you are accepting some more risk.

Overall, investing in mortgages is a fairly sound practice, with less risk than stocks or mutual funds. You also get a chance to join the real estate market without having the maintenance and management issues associated with life as a landlord. You receive a passive income stream that remains tax sheltered. If you are interested in RRSP Mortgage Investing as an investment vehicle, contact Amansad Financial today!

Private Lenders

When the Banks won’t allow you to borrow money
Private mortgage loans are another option when the bank says no. If you are unable to qualify for a 1st, 2nd. or 3rd mortgage or need access to your money sooner rather than later, a private lender within my network can help. Keep in mind, most private lender will not lend above 75% of the appraised value of the property. I have some key contacts that will lend up to 85% of the appraised value, sometimes more if collateral is added to the equation.

Private Mortgage Loans

A majority of private lenders offer 1st, 2nd, 3rd and even 4th mortgage in rate situations. The rates on first mortgages can start as low as 5.99% depending on the LTV and go as high as 12% depending on the risk involved. Anything behind a first mortgage is a higher risk and therefore will normally start at 10% interest, going as high as 22% (depending again on risk). Private Mortgage Lender will charge a fee which, along with broker commissions, will be deducted from your loan.

Investment Mortgage Lenders

Where do the funds for private mortgages come from?

Private mortgage funds come from various sources. They range from private individuals, Capital Lending Corporations, and many from MIC (mortgage investment corporations). These are funds that have been established as an investment tool and are regulated by the provincial securities commissions.

Many individuals have good intentions. Sometimes obstacles arise such as…

  • You’ve been laid off from work
  • You have some unexpected and/or unforeseen bills
  • You’ve been hurt on the job, and your coverage isn’t enough
  • You have a large down payment, but credit still keeping you from getting approved to purchase a home
  • You looking to purchase raw or serviced land
  • You are looking to to develop raw land
  • You are looking to proceed with an equity based purchase from an acquaintance or family member

Use the equity in your home and allow me to connect you with a Private Lender that looks past the less than perfect credit, and/or unforeseen circumstance. Some reasons to consider using a Private Lender include:

  • You are Business for Self
  • You have difficulty proving your income
  • You need to consolidate and get back on track
  • You need to Finance a bankruptcy
  • You’ve fallen behind on your mortgage payment.
  • You need to get out of foreclosure
  • Simply need cash quickly

Private Mortgages are geared for quick turnaround time!!
***URBAN areas, RURAL areas***

Private mortgages will have lender fees, and in some cases as low as $500 (O.A.C). Brokerage Fees extra. Depending on the circumstance and location, private lenders will generally advance between 55% – 85% of the value of your home, Every situation is different. Contact me to see how I can help you.

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Daniel K. Akowuah | Mortgage Professional / DLG Underwriter
Toll Free: 1(877)756-1119 | PH:1(780)756-1119 | FX:1(877)238-7794
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