Because we own a condo and its price has appreciated over a year and a half, we have an option to refinance in the amount of 80% of a new property price. In our case, the reason for refinancing is to take the difference in cash and reinvest it.
Current mortgage rates for refinancing are very close to 2.2% in Canada so if the return on investment is more than 2.2%, it will make the whole process of taking the money and investing it profitable.
What are our options for investing the new capital?
- Investing in dividend-paying stocks
- Down payment for a new property
- Investing in private mortgage, i.e., lending money with other lenders to somebody to finance real estate buying
- Lending loop — lending to small businesses in Canada
All four options promise to return more than 2.2%, and this is the second time we are going to invest money which is not saved from our regular wages. We are going to invest capital that we have from our investment. By the way, the first time we reinvested money was Dividend Reinvestment Plan (DRIP) in our dividend-paying stocks portfolio. Reinvesting money received from property appreciation creates the compound interest and it is great. At the end, it is all about to our money to work for us and, even better, money that was not received from five days nine hours working.
Up to now, we have not invested in private mortgages and have not put dipped our toes in Lending Loop. Diversification is important for us, and this is why we are going to invest in these new investment tools.
There are different contract types available for private mortgages. Some allow you to invest for a year; others require you to invest for five years. Profit from private mortgage, also varies and directly depends on how much of the mortgage is in use to finance the deal, i.e., if the mortgage is 60% of the property price, then the risk is lower, and therefore, percent on investment will be lower than in the case when mortgage covers more than 70% of the property price. Sixty percent means that the property price should fall at least 40% to make it impossible to get money back to investors. Having invested in private mortgages, we are aware of promises of possible profit of up to 7—10% annually.
Lending Loop is a peer-to-peer lending marketplace that focuses on small businesses. Based in Toronto, Lending Loop is Canada’s first (and currently only) fully regulated peer-to-peer lending platform. Businesses can apply for a term loan product with flexible terms. The amount could be as small as 5,000 CAD and as large as 500,000 CAD. Most loan durations are from 3 months to 3 years, but some can be as long as 5 years. Once approved, the loan goes into Lending Loop’s Marketplace where investors have 30 days to fund the project. If the loan becomes fully financed before the funding period expires, the loan will go through a finalization stage for a few days before it starts going into scheduled payments.
The investment rate in this marketplace varies from 7.02% to 19.17%, depending on the risk given to business.
Dividing our investment between private mortgage, and Lending Loop we expect to earn at least an 8% profit.
The current price of our condo is 440,000 CAD, and 80% of it is 352,000 CAD. Our current mortgage balance is 209,605 CAD.
Our expenses related to refinancing are about 1,262 CAD mortgage prepayment fee and about 400 CAD notary fee.
After subtracting all expenses, we will get 140,733 CAD for reinvestment.
So, we have borrowed 140,733 CAD at 2.2% and reinvesting that money in private mortgage and Lending Loop returns 8%— i.e., 5.8% profit which is 8,162 CAD.
Wow, it is awesome that by utilizing two new income streams like private mortgage and lending loop, we are going to receive passive income of 8,162 CAD annually.
We will be more than glad to hear about other possible investments available for us readers aware of.