What is a private mortgage?

Most people associate mortgages with banks lending money to homeowners in exchange for interest payments that are secured by the property itself as collateral. In fact, most people probably have some experience with this kind of mortgage from the bank, whether the experience is direct, through family, knowledge from friends, etc.

Beyond banks and trust companies

However, the concept a mortgage is in fact a lot more basic than this. You don’t have to be a bank to lend out money in the form of a mortgage. You don’t even have to be a trust company, which is usually the second place people turn to for a mortgage after a bank. All that’s really needed is someone who is willing to lend money to a person in exchange for interest payments backed by the property as collateral.

That’s what’s called a private mortgage, and the market for them is quite large in Canada, and is only getting bigger.

There are various reason why private mortgages have become more popular — both in recent years, and over the course of decades. Recently, a few factors have contributed to the popularity of a private mortgage. First, from a borrower’s perspective, getting a mortgage from a bank or a trust company can sometimes be difficult. A private mortgage lender can be easier to work with.

The benefits of private lending

Additionally, and from the perspective of the lender, private mortgages offer advantages as investments that are uncommon. Someone borrowing from a private lender is usually willing to make relatively higher interest payments.

Furthermore, despite the less-regulated nature of private lending, private mortgages are still regulated to ensure the safety of investments. In Canada, private mortgages have been a historically stable and profitable sector for investing.

Add to that the well-developed practice of pooling private mortgages together and using them as an opportunity for the average investor, and you get entities such as mortgage investment corporations (MICs) and other mortgage funds that harness the power of the private mortgage to deliver higher returns with lower risk.

ASCEND MIC is a mortgage investment corporation that specializes in offering investors high returns at low risk in Canada’s mortgages market. Please contact us to learn more.