Expected Returns On Private Mortgages

“What Type Of Return Can An Investor Expect To Receive From A Private Mortgage?”

If you’re an investor looking to put funds into private mortgages, one of the first things you’re going to want to better understand is the rate of return you can expect to receive from your investment.

With private lending, the rate of return is made up of an interest rate charged on money borrowed as well as any lender fees that are part of the loan commitment.

For today, I’m only going to focus on the interest rate you can expect for either a first or second mortgage as lender fees may or may not exist in any one particular deal.

The following interest rate ranges I’m going to provide for private 1st and 2nd mortgages can be applied to both residential and commercial real estate lending scenarios.

When looking at first mortgage financing opportunities, a private lender should expect a return in the 7% to 12% range with the majority of deals being priced between 8% and 9%.

An interest rate of 7% is going to command a very high level of equity and a corresponding low loan to value whereas rates at the higher end of the range are going to relate to higher loan to value scenarios where the maximum financing amount one can expect is 85% loan to value.

In our office, it is fairly rare that we place private mortgages in the 80% to 85% range as they are higher risk and not something that most of our private lenders have an appetite for.

Private 2nd’s Are Higher Rate And Higher Risk

The interest rate range on a private second mortgage is going to be higher, landing in the 8% to 15% range.

The higher rate is relative to the higher risk of being in a second mortgage position where you have less coverage on your loan compared to the first mortgage holder.

Similar to the discussion above on private 1st’s, to get a private 2nd mortgage at an 8% interest rate, the overall loan to value ratio is going to have to be low indicating that the borrower has a considerable amount of equity in the project to cover off the lender’s funding risk.

Real estate based loans in second mortgage position that are at the higher end of the range will relate to higher risk scenarios which include applications like construction or high ratio debt refinancing requests.

Some private lenders prefer small second mortgages because of the higher level of return they afford, but they will also stick to smaller loan amounts to reduce their potential risk of loss.

If you’re current a private lender, or would like to become one and want to learn more about the different potential rates of return that are available to you, then I suggest that you give me a call so we can go over your investing criteria together and see if we can match up rate and risk scenarios that can meet your investing requirements.

Click Here To Speak Directly To Toronto Private Mortgage Broker Joe Walsh

Outstanding Private Mortgage Interest Rates

“What Are The Best Private Mortgage Rates You Can Secure?”

If you’re looking for the best possible private mortgage interest rates, you may be pleasantly surprised with what you might be able to find in the market place.

On average, private first mortgages are going to range from 8% to 11% from most sources to private mortgage financing.

But, there are exceptions to might even surprise you.

There are sources of private funds that are ultra conservative with their lending criteria and as a result are also very realistic about what type of return they can expect to receive.

For instance, if you have a very good piece of real estate where the financing amount required is not more than 50% loan to value, then you can potentially secure a private mortgage in the 5% to 6% range, which can rival what a bank or institutional lender may be able to offer for the same property.

But the key for getting these types of interest rates on a private mortgage is a lending scenario with very low risk.

Your next question may very well be, if its low risk, why would you go to a private lender?

Remember that private lending is primarily equity based, and there are situations where the property owner or borrower doesn’t have the cash flow and/or credit to qualify for a bank or institutional mortgage, even though the security is of a very high quality and the loan to value is no greater than 50%.

But in order to try and access this type of premium private mortgage rates, you’re going to need to have two things.

The first thing required is patience. There isn’t a lot of this type of money out there and the people that provide it or look after it are very careful and cautious with regards to the lending decisions they make.

The second thing you’re going to need is someone who can provide you with access to these great sources of financing.

Similar to most private lenders, those providing the lowest rates rarely have their own store front and choose more often than not to work through experienced mortgage brokers that they trust to bring them with well qualified deals.

If you have a real estate financing scenario that meets the basic criteria I’ve outlined above, please give me a call so we can go over your requirements together as well discuss potential premium priced private mortgage lending sources that could be interested in providing funding to you.

Click Here To Speak With Private Mortgage Broker Joe Walsh