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Private Mortgage

Private Mortgage

Investment in the Private Mortgages is a lucrative and low risk.

Usually mortgages originate with a bank or financial institution – this is called conventional mortgage. Private individual, a seller, or an investor may choose to hold a mortgage directly. This mortgage structure may bring several advantages to buyers, sellers, and third party investors.

 

Private mortgages is an investment vehicle with possibility to charge a rate of interest significantly above prime, usually 6% - 12% especially if the buyer is not able to qualify for a conventional mortgage.

Registered funds eligible for arms-length mortgage investments: RRSP, RESP, LIRA and TFSA.

By opening a self-directed account with one of the financial institutions listed below, the RRSP plans become the mortgage holder. All payments are directed back to the self-directed RRSP, LIRA and RESP accounts and your entire profit is sheltered from tax. By using the TFSA account you do not pay any taxes at all. Financial institutions such as Olympia Trust, National Trust and B2B Trust are approved under the National Housing Act. They become trustees in administrating your RRSP, LIRA, RESP and TFSA mortgage.

The private mortgage is a negotiable instrument that can be bought and sold. The mortgage holder may choose a single lump-sum payment at the end of the term (called "balloon payment") or monthly interest payments. In many cases, a private mortgage has a clause, which requires the buyer to either pay off the private mortgage, or convert it to a conventional mortgage.

From the buyer's point of view, the private mortgage can be an excellent option, and may provide the way to purchase a home when bank mortgages are impossible. In cases where the buyer has poor credit, this provides an opportunity to build up equity and a positive payment record. After a few years the buyer will be able to refinance the private mortgage with a conventional mortgage, at a more favourable interest rate.

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