What is Private Mortgage Lending?
Updated: Sep 12, 2018
How does Private Mortgage Lending work? What are the benefits and what issues should be considered by investors who are thinking about these investments? At its heart, private mortgage lending is very simple.
An investor or group of investors funds a loan to a specific individual borrower. The borrower's repayment less management fees constitute the investors returns.
By repeating this process across a range of loans and borrowers, investors can effectively build their own diversified loan portfolios. It's like buying individual shares instead of investing in a shares fund.
What are the benefits for investors?
There are multiple benefits for investors with this structure. They are designed to suit you personally.
As an investor, you get to select the loans that suit your own risk and return appetites.
You also get an opportunity to build a bespoke portfolio of assets. You can choose loans based on a range of variables including yield duration and specific loan and borrowing characteristics that are important to you.
Here is a Typical Scenario:
Dave wants to borrow money to renovate his Northcote factory. Mary wants to invest her savings and earn some extra money. Private Mortgage lending brings these two together.
Mary wants to get her money back plus some extra profit. Therefore, she wants to lend only to credible borrowers who will return the money she lent at the end of the term of the loan.
Dave wants to pay as little as possible for getting a loan from Mary. But Dave's credit history is not that great since he’s had a few late payments on his credit card history. To compensate for the extra risk, Mary wants to charge 10% interest for lending to Dave.
Credible Craig, on the other hand, has been an excellent payer in his whole life. Mary would love to lend to him. But credible Craig wants to pay very little for getting a loan from Mary. Craig wants a 7.5% interest loan.
Mary wants to make sure she lends her money to multiple credible people and a few less credible for extra profit. She wants to spread her risk.
Mary, Dave and Craig know that if they could handle the payments between them, they could skip going to the bank and avoid being charged a service fee and other bank charges.
The above story is the problem Avano is solving. It matches people with different credit history and makes lending a beautiful hands-off experience. Avano understands the needs of those groups and matches them together without the need to even talk to each other. The monthly interest payments are generally paid directly to the lender's bank account or in some cases to the solicitor's Trust account and then paid promptly to the lender. It distributes the payments every month and makes sure everyone gets paid on time.
Here is an informative video we found that explains it all really well.
Of course if you have any questions, please don't hesitate to give us a call to discuss your options in more detail.