The most secured and durable investment is real estate property. History has proven that although real estate prices may have fluctuated from time to time, over the long-term real estate property has appreciated in value. The security for a mortgage is real estate property. Private mortgages provide a regular income stream, tangible security and a real return to the investor that is superior to bank deposit, GICs and bonds. The big-chartered banks in Canada have often been criticized for charging exorbitant service charges. However service charges at best probably only cover the overhead costs incurred by the banks in their operations. Their favorite money making venture is undoubtedly the mortgage business.
- Low Administration Costs: Each of us who have had a mortgage know how long it takes to pay this debt off. The Banks know this as well. The borrower is required to pay the costs to have the mortgage registered against title to their property. The Bank simply sits back and goes about cashing the monthly payment for years without incurring any further cost whatsoever.
- Cash-Flow: A mortgage generates cash each and every month. Obviously the amount of the monthly payment will depend on the size of the mortgage, the interest rate and amortization period. However the payment comes in each month if the borrower does not want to lose their home. The fact is that the mortgage payment will be the last payment not made by someone in financial difficulty, and if bankruptcy occurs, a mortgage holder’s security is not affected by the borrower declaring bankruptcy.
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- Protected Capital: Perhaps the main reason why Banks love mortgages, and why they fight tooth and nail with each other for this business, is the low risk associated with these investments. Obviously the risk associated with a first mortgage is less than the risk associated with a second mortgage, but then again the return from holding a second mortgage is substantially greater.