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WHAT ARE PMDI’S (PRIVATE MORTGAGE DEED INVESTMENTS)?
What is a “promissory note?” A promissory note is a written promise to pay or repay a certain amount of money at a certain time, or in a certain number of instalments, or on demand to a named person. It usually provides for payment of interest, and its payment can be secured by a Mortgage over real property.
The person or company receiving the loan proceeds (the borrower) becomes obligated to repay the debt by signing a promissory note which specifies:
(1) The amount of the loan (the principal);
(2) The interest rate (interest);
(3) The amount and frequency of payments (debt servicing);
(4) When the borrower must repay the principal (maturity date);
(5) The penalties imposed if the borrower fails to meet payments on time (late charge) or decides to pay a portion or the entire principal prior to the due date (early repayment penalty).
The promissory note identifies the borrowing company or individual and the person who will receive the payments (lender, mortgagee or note holder).
PMDI’s are loans secured by real estate and made by a private lender instead of a bank. The PMDI’s that we structure are short to medium term (1 month – 2 years) asset based loans. This means that the decision to lend is based on the equity and value of the property being put up as the collateral. The security for the loan is enhanced because the loan represents a maximum of 70% of the appraised value of an income producing property. On non-income producing property (vacant land, construction funding etc.) a maximum of 65% loan to value is advanced. Holders of PMDI’s can expect interest returns of 9.5 to 13% on 1st mortgages in the current market.
Some other private mortgage companies make loans to individual homeowners. The types of private mortgage advances structured by CC Capital are made to professional investors and companies. There are three main advantages of lending to these classes of borrower.
Firstly, the NCCP Act 2009 does not apply to Company Borrowers; this means that in the rare event of a default, it is much easier to take possession and sell any property that has been pledged as security for the promissory note.
Secondly; Taking an income-producing property as security, allows borrowers to make loan repayments from the properties’ income, not out of general cash flow (we can insist that rent payments are directed to cover the loan repayments), making for a safer loan. And finally, there are a lot more opportunities to lend money at higher interest rates and lower loan to value ratios on commercial and investment properties than there are on owner occupied single family residences.
PMDI’s could be considered by both the retired investors seeking to increase their interest income and other investors seeking to diversify their portfolio. Yields in the 11% range allow the retirement income investor the chance to substantially increase their income and lifestyle with little additional risk vs. equities or fixed income deposits.
In the rare event of default, the private mortgage investor will begin re-possession proceedings. Should payments, penalties and legal fees (as spelled out in your mortgage document) not be brought up to date by the borrower, the trustee (CC Capital) will foreclose on the property serving as the collateral security for the promissory note. An auction will be held, and the lender (private mortgage investor) will either receive the total amount of the principal of the note (if the property is purchased by an outside bidder) or the trustee (CC Capital) will bid the amount of principal, interest and penalties due and the mortgage investor will receive title to the property. Since the property will be worth significantly more than the amount owed, opportunity exists for significant additional profit. In fact many private mortgage investors look forward to obtaining ownership of income producing property at significant discounts should foreclosure become necessary.
For the best in Privale Funding, you cannot go past CC Capital