Investing in Mortgages ? 101 | FCYD

Today I?d like to open your mind to the possibility of mortgage investments as a tool to enhance your investment and retirement plan.

Mortgage investments can be very attractive as they offer the investor a secure yet a high rate of return ? regardless of economic conditions.

But if they are so attractive, why aren?t more people investing in them? Well the truth is, they?re not well advertised. Unfortunately when they do make headlines it?s for the wrong reasons. We?ve all heard of mortgage investment schemes like Eron Mortgage in the 90?s, and investors having their entire life savings erased because some fraudster felt the need to swindle the masses. Fortunately, there are numerous credible and viable mortgage investment options in the marketplace.

To explain how mortgage investments work let?s turn the tables here for a moment.

If you?re a homeowner, you likely make regular mortgage payments to your bank or credit union. Your lender is the investor here. Their investment is paid back overtime by the borrower (you) every time you make a mortgage payment. Let?s say your mortgage interest rate is 5%, this is the lenders annual return on their investment (ROI). Their returns are stable regardless of fluctuations in world financial markets.

Now read that last paragraph again, but do so while picturing yourself in the lender?s shoes.

Where else will you find a fixed rate of return that is secure regardless of economic conditions? How would you feel if you knew your retirement plan wouldn?t be partially erased every time the value of the stock market dropped? What if there were mortgages out there that paid you double digit returns with the same level of security as one with a lower return? Ever wondered what it might be like to BE the bank instead of always paying the bank? Are you starting to see the opportunity here?

Here?s the catch: Wherever opportunity lies, caution must be exercised.

When you applied for that mortgage on your home you probably recall filling out an application form.

You were asked financial and employment information, had your credit report reviewed and were required to provide a substantial down payment as security for your home purchase. The lender also likely ordered an appraisal on the home to ensure their security.

As the investor, this same level of due diligence must be performed in order to ensure that your mortgage investment is secure. However, most people do not have the time or the resources to perform this level of due diligence, nor do many have the capital required to invest in a large mortgage for another family to buy a house.

So what?s the solution?

A Mortgage Investment Corporation (MIC) is an investment vehicle governed by the Income Tax Act of Canada and is required to meet the auditing and regulatory requirements of securities products in Canada. With a minimum ,000 investment, MICs are RRSP, RESP, and RRIF eligible and allow investors to pool their funds and invest in mortgages that they would otherwise not have means or resources to. All mortgages are professionally underwritten and are backed by real estate. A MIC is required to invest at least 50% of assets under management in residential mortgages in Canada.

I will leave you with that nugget of information until next week, where I will answer the questions: Are all MICs the same? And, what due diligence should I conduct before I invest in a MIC?

Wishing you prosperity in all your investments,
Blake

Blake Wyatt can be reached at 604-374-4543.

Source: http://fcyd.org/investing-in-mortgages-101

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