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Special Glossary of Mortgage Terms
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The Learning Centre:
Mortgages
 

The Money Management Newsletter: Home Ownership
Have you ever thought about investing in a private mortgage?


Investing money in a private mortgage for attractive returns has its merits and its risks. This type of investment is one in which a person lends money to a borrower who pledges real estate as security for the loan. These types of mortgage investments may be arranged through a Mortgage Broker.

Mortgage Brokers must give you full information

Mortgage Brokers are required to provide each prospective investor with information in the form of an Investor/Lender Disclosure Statement, as well as supporting documents such as an appraisal and an Agreement of Purchase and Sale.

This information package must include:

• a description of the property or project to be mortgaged;

• the terms and conditions of the mortgage loan;

• how the mortgage will be administered;

• in case of mortgage syndications, terms of the syndications;

• all prior claims on the property, such as other mortgages, liens or taxes owing;

• information on the borrower, including ability to repay the loan;

• any relationship or connection the broker has with the borrower and appraiser;

• any interest the broker has in the property; and

• the broker’s fees for the transaction.

By law, the broker cannot accept money from you until 48 hours after you have received this specified information and have signed a commitment to fund the mortgage.

Do your homework

It took a long time to save the hard-earned money you want to invest, so it’s wise to carefully review all documents before making any decisions. You are entitled to take at least 48 hours (not including Sundays and holidays) to review the investment documents. Read them carefully.

Consider the value of the real estate. The Mortgage Broker must provide documentary evidence of the property’s value, other than an Agreement of Purchase and Sale. This could include an appraisal.

Unlawful activity

Mortgage Brokers are prohibited from selling or arranging the sale of mortgages that are, or have been, in default within the past 12 months.

Mortgage Brokers cannot accept funds from you to hold for a future investment.

Risks to consider about mortgage investments

• They are not insured by the Government of Ontario.

• They cannot be guaranteed by the Mortgage Broker.

• They may be difficult to resell quickly.

Mortgages can be high-risk investments. Consult your financial advisor to see if mortgage investments would be suitable for you.

Another source of information is the Financial Services Commission of Ontario (FSCO), an agency of the Ministry of Finance. Call (416) 590-7298, or toll free, 1 (800) 668-0128 for a copy of their comprehensive guide to investing in mortgages.

All Mortgage Brokers in the province of Ontario are required to be registered with the FSCO and you can confirm that the broker you are dealing with is qualified and registered by visiting or calling the above numbers.

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