Have you considered an investment in the real estate market? Are you looking to earn a stable return? One of the best ways that have garnered popularity in recent times is through a Mortgage Investment Corporation (“MIC”). With a MIC, investors can get a higher fixed income return as compared to any other traditional fixed income options. MICs invest in residential mortgages and are able to charge a higher interest rate to borrowers due to their unique circumstances.
There are many reasons why borrowers seek loans from private lenders like MICs. In most cases, the borrower’s profile may not fit with what traditional lenders look for. For example, the borrower may have unpredictable income, or the borrower may need the money on short notice. Generally, traditional lenders have a box that they need their borrowers to fit into, and if they don’t fit into the box, they get a decline. Private lenders have more flexibility and are in the business of being more nimble and have a greater willingness to analyse the unique circumstances of the borrower. As a result, private lenders can charge a higher rate of interest to compensate for the service and the perceived higher risk.
Perceived higher risk does not always mean high risk. Traditional lenders use a different lens in the mortgage application process. They place a greater emphasis on the borrower’s ability to provide proof of a steady future income to service the loan and less emphasis on the borrower’s equity position. This can be challenging for borrowers who are self-employed or own a growing business, since very often, they don’t earn a stated salary or they draw dividends from their business at the end of a cycle. In contrast, private lenders are able to work with the borrower’s unique circumstances, structure a loan that makes sense for both parties, and are able to rely more on the equity position and use that as collateral by placing a lien on the property to protect capital.
This does not necessarily mean there is more risk. By maintaining a buffer between the market value of the property and the dollar amount of the loan, risk can be reduced significantly. This is called the Loan-To-Value ratio. Private lenders will choose a Loan-To-Value ratio that fits with the risk tolerance of investors. For example, using a 75% Loan-To-Value means that if a property is worth $100,000, the lender will only lend up to $75,000. In the event the borrower is unable to pay the loan, the lender will have the security of $100,000 which can be used to cover the loan, with a comfortable cushion.
It’s also important to understand the MIC you choose to invest with. Morex Capital has been in operation for over 9 years, delivering an average of 9.35% annualized to investors, has been through multiple market cycles and has never lost money. Morex Capital is regarded by borrowers as friendly capital. We work with borrowers to ensure they are able to pay their loans. We protect investor capital and we deliver superior returns.