A better economy and rising interest rates could also help mortgage pool funds, whose main line of business is lending money to accredited real estate investors. A large portion of the money used by real estate agents to finance fix-and-flip properties comes from mortgage pool funds.
Mortgage pool funds are appealing investments despite sharing many similarities with banks. These variances are mostly related to a few key areas. Here are the main distinctions between banks and mortgage pool funds:
1. Capacity to redistribute capital more quickly
Bank-issued mortgage loans usually have maturities between 15 and 30 years. Fixed-rate bank loans may become less valuable as interest rates rise because of their long durations. For mortgage pool funds, the circumstances are different because their loans are often of a short duration.
Mortgage pool fund loans typically have terms between one and three years. In addition to reducing vulnerability to fluctuations in interest rates, these shorter loan maturities enable mortgage pool funds to redeploy capital more quickly and take advantage of rising interest rates.
2. Richer yields and monthly dividends
The majority of mortgage pool funds distribute their dividends on a monthly basis, while bank stocks typically pay out quarterly. Since they can more readily match their monthly expenses with their income, many income investors choose monthly payouts. Interest paid on loans is the source of income for the mortgage pool funds. Distributions of this income are made directly to fund investors.
Mortgage pool funds are able to charge greater interest rates than banks because of the specialized lending specialty. This allows them to provide their investors with bigger returns.
3. A niche emphasis and excellent research
Due to their familiarity with local markets, the majority of mortgage pool funds are better at managing portfolio risk. These funds are also able to personally inspect each property and closely oversee each loan, catering to a tiny but specialized niche of experienced real estate investors.
Better due diligence lowers the risk of the loan even further. Furthermore, a significant down payment and a personal guarantee are prerequisites for many mortgage pool funds. Banks, on the other hand, might simply need a little down payment.
4. Fewer regulatory and compliance hurdles
Mortgage pool funds can increase their assets and profits by taking advantage of a rising real estate market. Due to these restrictions, banks are now required to keep 150% of the risk weight of certain loans instead of the prior requirement of 100%, which means they must carry additional capital on their books. These higher capital requirements provide non-bank lenders a competitive edge and restrict banks’ capacity to expand their portfolios.
Conclusion
Gradually increasing interest rates and a growing economy are expected to help banks and mortgage pool funds alike. Nonetheless, a number of competitive benefits that mortgage pool funds offer, like greater rates, monthly payouts, less regulatory restrictions, and the capacity to redeploy capital more quickly, making them more appealing to investors.
If you are looking for a trustworthy mortgage investment corporation (MIC) in Abbotsford to get started with a mortgage investment, Versa Platinum is here for you. For more details, give us a call today.
