Direct mortgage investment outline

PRODUCT INFORMATION: 

Mortgages have traditionally been the preferred investment for banks; in fact, government regulations for trust companies and banks require a large percentage of their assets be based in either conventional or NHA insured mortgages.  (Conventional mortgages are mortgages where there is a 20% equity or larger, and NHA mortgages are ones in which the equity is less than 20% and the mortgage is insured by a government approved insurer against default or loss to the bank.) 

Mortgages are similar to bonds in that they are debt instruments whereby the investor’s return is derived from a predetermined, agreed upon return (the interest rate,) they have security in the form of real estate (preferable to the security provided in bonds which are an unsecured corporate loan,) and the yield is typically greater than a bond.  Mortgages offer the security of a blue chip bond (very low level of risk) and a locked in yield like a GIC but at a much higher return.

DRAKE FINANCIAL DIRECT MORTGAGE INVESTMENTS

Drake Financial DMI mortgages are mortgages where the individual investor selects a specific mortgage investment and funds the mortgage entirely.  The investor makes a one year commitment and can get the investment funds back at the end of the year.  The rates are generally higher but require some administration by the investor and there may be interruptions in the monthly payments for arrears.

DIRECT MORTGAGE INVESTMENTS OFFER GREAT BENEFITS:

SECURE 

+ All mortgages are registered directly at land titles registry in the province the property is located.  This ensures the property owner can not sell or refinance the property without dealing with the investor’s mortgage.

+ A professional appraisal or a provincial property assessment authority usually verifies all property values independently. 

+  All mortgages are completed through experienced law firms specializing in real estate transactions and include title insurance and ensure property taxes are paid.

+  The investor funds the investment directly through the law firm “In Trust.”  This ensures the investor’s funds are secure throughout the whole transaction.

SUPERIOR RATE OF RETURN

+  Drake mortgage investments offer rates of return at two to five times that of a GIC, depending on whether the mortgage is a first or second mortgage and various other factors.

RRSP ELIGIBLE

+  Drake mortgages are an eligible investment for all TFSA’s, RESP’s, RSP’s and RIF’s in Canada, although not all trustees offer administration of mortgages.  You may have to transfer an amount from your RSP to another trustee to fund mortgages.  Drake is an authorized agent for Olympia Trust and as such can handle the process for you.  Just ask your Drake Dealing Representative about it.

FULL ADMINISTRATION

+  Drake performs all administration at no cost to the investors.  Administration includes originating and completing mortgages, handling dishonored payments, payouts, amortization schedules, renewals, insurance and property tax confirmations.

FLEXIBILITY

+ Drake mortgages are arranged on a one-year term so the investor’s commitment is for only one year at a time.  At the end of the one-year investors have the choice whether to renew the investment for an additional year or not.

ABOUT DRAKE:

Drake Financial Ltd. was founded in 1985 and has grown to be one of the fastest growing and most reliable investment and mortgage firms in Western Canada.  Drake is government licensed and has its office in Abbotsford, BC and is expanding.  The company is a member of the Better Business Bureau (BBB,) and Canadian Mortgage Professionals (CMP) and is proud to support their ethical codes of conduct.  Drake is also a member of the Registered Deposit Broker’s Association and registered as and exempt market dealer with securities regulators.

Our goal is to provide clients with the best investments and financial services available based on uncompromising honesty, integrity, and professionalism.  Our aim is to build long term relationships with our borrowers and lenders alike through open communication and dedicated teamwork.  Our objective is to have a satisfied customer at the end of every transaction.                  

RATE OF RETURN:

Current Pricing (as at August 11, 2023)

Drake Direct Mortgage Investments –

First mortgages go from 8.75% to 10.75% depending upon the “pricing factors.”

Second mortgages go from 9.75% to 15.75% depending upon the “pricing factors.” 

PRICING FACTORS:

Mortgage return rates vary with the fluctuation of interest rates in the marketplace but the main “factors” that differentiate pricing between mortgages are mortgage charge (1st, 2nd, or 3rd mortgage,) location of property, type of property, loan-to-value, credit history, and overall strength of the borrowers. 

Mortgage Charge – Investors will generally receive a higher yield for a 2nd mortgage than a 1st mortgage, and higher still for a 3rd mortgage than a 2nd mortgage.  (3rd mortgages are rare and should only be considered by experienced mortgage investors.)

Property Location – A property with a good location is considered more marketable and because the property is more marketable, the mortgage will be more secure and command a lower yield.

Property Type – Residential properties are preferable to commercial or agricultural properties, and urban properties are preferable to rural properties.  Single family properties are preferable to strata or multi-family properties.  The better the property type, the lower the return on the mortgage.

Borrower Strength (Covenant) – This refers to the employment of the borrower, income, stability of employment, assets, liabilities, etc.  The stronger the applicant the stronger the mortgage and the lower the mortgage yield.

Loan-to-Value – The lower the loan-to-value the lower the interest rate.  Loan-to-Value is calculated as the mortgage investment amount plus any senior mortgages (if applicable) divided by the property value as determined by a professional appraisal or provincial property value assessment.  Note:  Chartered banks lend to a loan-to-value of 80% - a mortgage investment with a loan-to-value higher than 80% should only be considered by experienced investors.

Credit History – An applicant will generally qualify for a better rate of interest if their credit is good, and a higher rate if their credit is not good. 

COMMON QUESTIONS:

  • Why would a borrower take a mortgage from a private investor instead of a bank?
    Usually when a borrower takes a private mortgage they do not qualify at a bank.  Banks require proof of income in the form of tax returns and many self-employed individuals have write offs sufficient to preclude their borrowing from banks.  Additionally, there are numerous clients who make their financial decisions based upon expediency – especially if they are borrowing for investment or business reasons.

  • What if I receive a bounced cheque? 
    Drake mortgages call for a $150 dishonored payment fee, and a Drake employee will collect the payment for you at no charge.

  • How long do I have to commit to a specific mortgage? 
    All Drake mortgages are written on a one year term so that after one year if you need the money for something else, you can chose to get your money back or renew for another year.  If you chose to have your money returned or reinvested in another mortgage, Drake will handle the collection of your funds which involves refinancing or transferring the mortgage to another investor.

For more information, or to answer further questions please call a Drake Dealing Representative, or log on to our web site at pioneerwest.com to learn more about mortgage investments.