Chapter 13

Frequently Asked Questions

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.