For a long time when it came to investing in private mortgages, second mortgages were usually the preferred option for investors. Second mortgages are riskier to the investor, and therefore can typically have much higher interest rates attached to them. Still, the fact that a high percentage of equity was put up as collateral made even the small risk to the investor worth the big return. And the fact that second mortgages are typically for a much lower amount than first mortgages also meant that investors didn’t have to come up with as much capital initially, adding to the popularity of investing in second mortgages.
But there’s a shift happening in today’s market. Investors, for a number of reasons, are starting to look at first mortgages as their prime choice as an investment vehicle, and with all the money to be made in this sector, it’s no wonder why.
First mortgages do require that more capital be put up-front for the investment. But in exchange for that cost, you also get much more return on your investment because first mortgages tend to be longer than second mortgages, even if it’s only a year or so. That’s still a year’s worth of interest that you wouldn’t have otherwise made. Investors are also finding that they have that amount of capital, ever since the stock market crash of 2008. Since that time, investors have been wary of putting any more money into that market, yet they still want a safe, high-yielding investment. First mortgages are the perfect tool.
Another big benefit that comes with first mortgages is that they don’t carry the only disadvantage that second mortgages do. First mortgages are in the first loan position, which means that if the borrower defaults on the loan, they will be responsible to repay you for the loan before paying anyone else. That gives investors even more security with these types of loans.
Second mortgages have definitely been the prime choice for investors looking to put their money into private mortgages. But the economy has shifted ever so slightly, and just enough to open up first mortgages as one of the best choices for investors today. And it’s the reason why these loan products have become so popular in the investment sector today.
