How to Protect Your Mortgage Investment
As an RRSP Mortgage Investor, more often than not, you’ll run into a borrower looking for a mortgage on a property that has little to no equity. Unfortunately you just won’t be able to help these people as the risk is just to great and puts your hard earned money at risk of ever getting it back should the mortgage go into default.
However, there are a few avenues you should investigate before turning down the deal completely.
1) Does the Borrower owner other property?
2) Does the Borrower own other possessions such as cars, a boat, equipment etc?
If the Borrower owns other property with more equity, then I would suggest that you mortgage that property instead. But if the Borrower insists on wanting the mortgage on the 1st property then what you can do in order to protect yourself is blanket the covenant on both properties. That way your investment is far more secure and is now registered against two properties instead of one. If one of the properties is the Borrowers primary residence, then you can be assured that they will do everything in their power to keeping the mortgage current. However please keep in mind not to go beyond a loan to value that you’re not comfortable with regardless of the number of properties encumbered.
If the borrower also owns other possessions as I mentioned in #2, another way to protect your investment is to register a PPSA (Personal Property Security Act) which is a lien against that possession that can be repossessed if the loan goes into default. An old investor told me once that he was surprised at how some people go further out of the way to protect their wheels than the home so his rule was to exercise this action on as many deals as he could.
Remember these are simply instructions that you would have your Lawyer to care of at funding and again remember mortgages if not done properly can be a risky investment.
Walter Monteiro is a real estate and mortgage agent in the Province of Ontario. He can show you how to use your RRSP money to invest in high yielding 1st and 2nd mortgages. http://www.rrspmortgageinvestor.com
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