June 20th, 2016
What is a Syndicated Mortgage

What is a Syndicated Mortgage?

paul m2As brokers, we often focus on a variety of different mortgage products – this is an effective way to broaden out portfolios and increase our bottom lines. That being said, although growing in popularity, many are as yet unsure about the intricacies of syndicated mortgages. A syndicated mortgage is a loan. The only difference between a regular mortgage loan and a syndicated mortgage loan is that there is more than one lender/investor financing the deal.

Syndicated mortgages are attractive to investors because, instead of investing in securities like stocks, investors are lending on security that involves a contract for repayment and risk is mitigated.

Syndicated mortgages are also different from other investments.

  • A syndicated mortgage is not a security – securities don’t offer collateral whereas a syndicated mortgage is secured on a property where there is a contract with the borrower.
  • A syndicated mortgage is not a liquid investment – the date that you get your money back is based on the term of the contract.
  • Syndicated mortgages are RRSP eligible.

A syndicated mortgage is one where there is more than one lender, however some of those who lend in syndicated mortgages may prefer private residential deals, whereas others may prefer to invest in commercial or construction projects.

Syndicated mortgage returns will vary by project and so too will risk. Every syndicated mortgage is in itself unique and presents its own risk.

So how does one invest in syndicated mortgages while mitigating their risk?

Firstly, unless you are in the finance business you are going to need a good broker with experience in syndicated mortgages to guide you through the process. Work with your broker to help them understand the types of returns you are looking for and your appetite for risk. If you are risk-adverse you may opt to only finance deals that have more equity in them whereas for higher returns you may choose to assume more risk by lending on a higher percentage of a property’s value.

Your broker should be able to help you build a framework for the type of deals you would be interested in getting involved in. This could mean that you won’t entertain borrowers who have had problem credit, or the most you are prepared to lend is 75% of the value of a property.

Next – a broker experienced in syndicated mortgages should be able to source out projects and/or borrowers, present deals to you and underwrite your deals based on your criteria.

Finally, on the other side of the deal – sometimes a deal can run into trouble and that is why it is critical to work with a broker who understands enforcement and can collect your money should an issue erupt.

We hope that this blog has been useful in helping you better understand how syndicated mortgages work and how you can find a good broker to help you decide if this is the right type of investment for you.

Paul Mangion has years of experience dealing with syndicated mortgages and can offer the resources and support you need to get started.

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