Typical scenarios in Mortgage Investments | Funding

TYPICAL SCENARIOS IN MORTGAGE INVESTMENTS

If you’re considering investing in mortgages, you must understand the typical scenarios for mortgage investments. To help you decide, if this is the right investment option for you, we have outlined the three typical scenarios involved in mortgage investments:

Bridging finance versus construction finance.

In today’s environment, the offers presented by most fund managers are typically for property developments. Which is lending to a developer to take an old property and demolish it to construct a residential or commercial building. With that, an investor would need to consider the risks related to the development success including future values and demand for the units being constructed. 

A bridge loan is typically a scenario where the borrower has a personal or business-related short-term funding gap and are able to offer real estate as security for the loan. The borrower may be buying or refinancing property or may simply need extra funds to improve a property ahead of it going on the market to sell.

First registered.

This is where a property owner has cash, quite often up to 65% of the property value and wants to acquire a new property or refinance a property within their portfolio. The loans are usually for a short period of time (up to 2 years with an average of 6 to 12 months), to allow the owner to not miss an opportunity and enough time to seek a longer term and lower cost mortgage facility, at which time the loan is paid out. Another common exit strategy is for the property owner to sell the property, following some light refurbishment works. The loan os provided on what’s known as registered first mortgage, which means if anything goes wrong, the first registered mortgage holder has first rights in repossessing and selling the property to recoup the loan. Guarantees are usually taken over assets of the borrower. 

It is important to know if the value of the property has been determined by a licensed and reputable independent valuer and if the the value is the “as is” or “as if complete” value. Providing an investment into a loan where the Loan to Value Ratio (LVR) has been calculated off the “as if complete” value usually comes with a higher level of risk as you’re also taking on significant development/ construction risk. 

Mezzanine/ Second registered finance.

The third typical scenario in mortgage investments is second registered finance. This is much riskier and involves lending money against a property that already has a first registered mortgage against it. if something goes wrong, you’re not first in the queue to get your money, instead you get it whatever is left after the first registered lender has recouped it’s loan, interest and penalty costs. 

Learn more about Funding’s mortgage investments or create your online account on our platform. 

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Online Platform.

Access our investments through our online platform.

  • Invest from $5,000.
  • Fund loans with other investors.
  • Monthly interest payments.
  • First mortgage security.

Whole Investments.

Wholesale and sophisticated investors can fund whole loans via our investor team.

  • $250,000 minimum – subject to loans available.
  • Monthly interest payments.
  • First mortgage security.