Payments stop and foreclosure
If the property owner stops paying, the remedy is foreclosure. It takes time and legal costs, and interest may stop coming in while it runs.
Property value
Your protection is the equity behind the mortgage. If the property is worth less than expected, or values fall, a sale may not cover what's owed.
Your money is tied up
A private mortgage runs until it's paid off or matures. You usually can't cash out on your own schedule.
Concentration
Funding one mortgage ties your money to one property. Spreading money across several lowers that risk but doesn't remove it.
Interest rate rules
New York caps interest at 16% a year on many loans, with exemptions for larger loans that don't cover one- and two-family houses. GOL § 5-501 A loan that breaks the rules can be hard to enforce.
Depending on the firm
When a firm services your mortgage, you rely on it to collect payments, keep records, keep the property insured and handle problems. Ask how it does each.
Every investment carries risk, including the loss of the money you invest. Nothing on this site is a promise of returns or an offer to sell securities.
Questions to ask any private mortgage firm
- How do you value the property, and how much equity is behind this mortgage?
- Is it a first mortgage, and is it recorded?
- Which documents will I receive?
- Who services the mortgage, and what does it cost me?
- What happens at maturity, and if payments stop?
- How have your mortgages performed, and can I speak with other investors?
These questions, plus a full checklist, are in the free investor guide.
