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How to Generate Passive Income with Mortgage Investments

By Jason Anbara | Posted on April 15, 2024

Smiling woman looking at passive income mortgage investments on her computer

In today’s unique economic circumstances, achieving financial independence and highly coveted passive income demands a savvy approach to investing. One tried-and-true method for generating passive income is through mortgage investments. In this article, we will delve into how to receive passive income with mortgages, helping you embark on your journey toward lasting stability and financial freedom.

Key Takeaways

  • Passive income with mortgage investments is a feasible and lucrative approach toward achieving financial independence.
  • Private mortgage investing involves lending money secured by real estate. Borrowers make monthly payments that include principal and pre-determined interest. The loan is repaid in full at the end of the term.
  • The main benefits of this investment strategy include high dividends, low initial investment, minimal ongoing management, and portfolio diversification.
  • The easiest and safest way to become a mortgage investor is to partner with a trusted mortgage administrator like NorthLend Financial.

Mortgage Investing for Passive Income

Mortgage investments typically involve investing in private mortgages, guaranteed by the borrower and secured by real estate. With this arrangement, the mortgage borrower makes monthly payments to the investor or lender at the pre-determined interest rate. The borrower then repays the loan in full at the end of the lending term.

Since private mortgages are secured by real estate, the investor is protected in case of default: should the borrower fail to make monthly payments or repay the loan, the property can be sold to recover the funds.

Benefits of Private Mortgage Investing in Canada

By uncovering the potential of private mortgage investing, you can tap into a reliable and lucrative avenue of passive income. Here are a few key benefits of this investment approach:

  • Secured investments. With private mortgage investments, the principal will be repaid at the end of the loan term. This means that your principal investment should be recovered in full once the mortgage term comes to an end.
  • Portfolio diversification. By adding tangible assets backed by real estate to your investment mix, you can diversify your portfolio, thus spreading the risk and reducing the overall portfolio volatility.
  • Ease of management. Aside from the initial research to find the right mortgage investment opportunity, private mortgage investing requires minimal ongoing effort to continue generating passive income.
  • Low initial investment. When investing in private mortgages through a mortgage mutual fund or a mortgage investment corporation, the minimum initial investment can be as low as $1,000.
  • Consistent income. When generating passive income with mortgage investments, you can be confident that you will receive consistent monthly income through mortgage payments, which include the interest accrued on the loan along with the repayment of the principal amount.

Businessperson showing the details of mortgage investments

Getting Started With Mortgage Investing

It is often challenging for individual investors to discover and assess mortgage investment opportunities, whether due to limited access to the market, lack of expertise, monetary constraints, or the intricacies of related regulations. Even if the right investment opportunity presents itself, many individual investors struggle to properly assess the risk, structure the loan terms, prepare the necessary documentation, and manage the loan through its term. Luckily, you are not alone on your passive income mortgage investment journey.

1. Find a Mortgage Administrator

The best course of action involves contacting an experienced mortgage administrator like NorthLend Financial to issue funds for private mortgages on your behalf. When choosing a reliable mortgage administrator, consider factors like their professional licenses, reputation, industry experience, and client reviews.

2. Connect with a Borrower

Connecting with the right borrower is critical to minimizing the risk of your real estate investment. Finding mortgage investment opportunities can be challenging unless you are deeply involved in the real estate market. This is where your mortgage administrator’s connections and experience become especially valuable. Your mortgage administrator will conduct the necessary research and due diligence to find the right borrower for your funds.

3. Agree to Terms

Next, the mortgage administrator will determine and negotiate the appropriate details concerning the loan. These could include terms, interest rates, funding pre-conditions, or required securities. The mortgage administrator will also ensure all legal and regulatory requirements are met and formalize the agreement between you and the borrower.

Customers signing paperwork related to passive income mortgage investments

4. Initial Investment

Once your mortgage administrator finds the right borrower and negotiates mortgage loan terms on your behalf, you can start investing. As such, you will be asked to provide the initial capital required to finance the mortgage loan. These funds will be placed in an escrow account to be transferred to the borrower according to the pre-determined terms of the loan.

5. Receive Monthly Interest

Every month, you will receive mortgage payments, which include a portion of the principal amount along with the interest rate as per the mortgage contract. These monthly interest payments represent the passive income from your mortgage investment, compensating you for lending the funds to the borrower.

6. Initial Capital Repayed

Finally, at the end of the mortgage loan term, the borrower will repay the principal amount in full. This amount may be repaid either through scheduled monthly payments until the loan maturity or as a lump sum payment. At this stage, your mortgage administrator will facilitate the repayment and ensure all legal and administrative procedures are followed.

Frequently Asked Questions

Can I use my RRSP to invest in mortgages?

Yes, RRSPs may be used to invest in mortgages. However, mortgage investments are usually only allowed in self-directed RRSP accounts. To learn more about using your RRSPs as an investment strategy, read our blog: Using Your RRSP to Buy Investment Property: A Comprehensive Guide.

What are the tax implications of mortgage investing?

In Canada, any income earned through real estate investing is subject to tax, including passive income earned with mortgage investments. This means that any interest earned on mortgage investments and capital gains from selling a mortgage investment is considered to be taxable income. Contact us to learn more about what this could mean for your investment.

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About Our Founder

Jason Anbara, Founder, CEO, and Principal Mortgage Broker, has been dedicated to realizing the homeownership dreams of countless clients through his mortgage services business. A distinguished graduate in International Management with Honours, Jason also holds a Bachelor of Commerce from The Telfer School of Management at the University of Ottawa.

Driven by a passion for his community and the positive influence his team has on both new and existing residents, Jason has garnered multiple accolades and awards. These recognitions underscore his unwavering commitment to providing exceptional customer service.

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