Mortgage
Investment FAQ
Since you are new to mortgage investing, you may have
questions in regards to what it is, what it can do for you, and
if mortgage investing is really worth it in the long run.
While all of your questions may not be answered, the following
is a short list of the most frequently asked questions that
pertain to mortgage investing, and should provide you with a
good idea of what you can expect.
What is the Mortgage Investment Yield?
The standard yield is 11 – 14% per annum. However, it is
not uncommon for some mortgages to have higher
yields.
How long is a Mortgage Investment Term?
You have complete control over the term of the loan.
While some loans can have a 15 year term, many have a three
year term or less. Ultimately, the choice is yours.
Is a Mortgage Investment Safe?
Yes! In fact, of all the investments you can make,
mortgage loans are rated as one of the safest. For this
reason, home interest rates are far lower in comparison to
credit card rates. Private money loans are generally
based on the real estate value itself, to the degree of the
individual borrower’s credit.
Is a Mortgage Investment Liquid?
A mortgage investment is not as liquid as a stock or
bond. That being said, it is recommended that you only
invest money you will not need returned to you
quickly.
How much money is required to make a Mortgage
Investment?
To give you a general idea, most mortgages range from $10,000 -
$50,000. However, you are in complete control over your
investment, because you are the only one who owns your
mortgage. The closing should occur at your attorney’s
office, or at a Title Company. Make sure you obtain title
insurance and an independent property appraisal, as well as
other significant documents that are required. Your check
should be given directly to your attorney or the Title
Company.
Is a Mortgage Investment more Trouble than it’s
Worth?
No. With a mortgage investment you have control over when
you receive your checks, which allows you to obtain your money
as quickly as possible. Furthermore, if it is your wish
to not be in direct contact with the borrower, simply set up
your mortgage investment plan with a third party, such as a
collection firm or your bank, and they will collect the
payments and contact the borrower on your behalf.
What about IRA’s and other Retirement
Programs?
A mortgage investment is a great investment for your Pension
Plan or self-directed IRA (Individual Retirement
Account). The reason is because if you use your Pension
Plan or IRA, your income is tax deferred and can increase
faster, as you will not have to pay taxes so you will have more
money for gaining interest.
Are their Precautions I should take?
First and foremost, you need to familiarize yourself with the
meaning of Loan to Value (LTV). Remember, all things
being equal, the greater the Loan to Value, the more risky the
loan. LTV is the percentage of the loan to the property
value. Therefore, a $70,000 loan to a property worth
$100,000 has a 70% LTV.
Most lenders are in agreement that on certain types of loans,
you would require a lower Loan to Value. Loans that
involve the least amount of risk are those to –
- Homeowners living in their own home
- Second homes
- Rental properties
- Commercial properties
- Vacant Land
While most lenders will only lend 50% or less of the actual
value of vacant land, it is also true that many lenders will
not lend to corporations or trusts. Thus, it is highly
recommended that if you do decide to lend to either of the
above mentioned entities, you require a larger money down
payment and/or a lower Loan to Value. In addition, it is
highly recommended that you always insist the Borrower takes
personal responsibility on the promissory note.
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