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The Increasing Popularity of Private Mortgages in Canada and What it Means for Investors

16 April 2024

Canada’s traditional banking sector is known for being stable and resilient, owing in large part to the near monopoly the Big Six banks have on deposits. But behind the scenes, these institutions face unrelenting pressure from innovations in financial technology, commonly known as fintech. After sweeping the consumer banking sector by disrupting payments and investment services, fintech’s next wave of disruption targets the traditional bank lending model, with a focus on mortgages. 

As demand for private financing has surged, , whole loan mortgage investments have become one of the fastest-growing alternative investment strategies in Canada. As more investors shift their attention to this asset class, they’re relying more on full-service programs, and their dedicated investment account managers, to facilitate deals and demystify the complex nature of wholesale lending in the mortgage sector. 

This article explores the crucial role investment account managers play in whole loan mortgage investing. It covers a wide range of topics, including the primary responsibilities of investment account managers; risk assessment and mitigation strategies; portfolio construction; regulatory and compliance considerations the impact of technology and innovation; and the investor perspective on whole loan mortgage investments.

Understanding Whole Loan Mortgage Investing

Private mortgages represent a large and growing segment of Canada’s mortgage market, offering high-net-worth investors the opportunity to fund entire mortgage transactions. Whole loan mortgage investing involves serving as the primary funding source for borrowers in need of short-term mortgage financing. In exchange for lending their capital, mortgage investors receive income in the form of interest payments and fees charged to the borrower. 

Although investors can source and fund private mortgage investments on their own, whole mortgage programs are usually administered by experienced mortgage companies that manage the entire investment process on behalf of the investor, including sourcing and presenting the investment opportunities, underwriting, funding as well as ongoing monitoring and administration. 

Whole loan mortgages appeal to investors because they provide an alternative source of yield maximization, regular income and portfolio diversification. Historically, private mortgage portfolios have generated higher returns than traditional fixed-income securities without assuming excessive risk. After all, mortgage  investors are participating in one of the most stable and predictable markets: Canadian mortgages. 

By investing in individual mortgages instead of mortgage funds, investors can set terms, including the interest rate, and save on overhead and management costs, potentially creating more lucrative income streams. This is one of the biggest benefits of being a direct lender. 

The Role of Investment Account Managers

The primary role of the investment account manager is to ensure a seamless experience while helping investors reach their financial goals. In this way, they’re not so different from account managers in traditional financial markets. However, given the complex nature of whole loan mortgage investing, investment account managers play a crucial role in identifying and presenting investment opportunities to investors in a way that aligns with their investment goals. This ensures a smooth matching process for the investor. 

With private  mortgage investing, the investment account manager’s primary task is to help the investor build a customized mortgage portfolio tailored to  their risk tolerance, target return, investment horizon, and other preferences. Investment account managers have clear criteria for presenting mortgage investment opportunities based on the investor’s unique  profileAll mortgages go through a rigorous screening and underwriting process, which is carried out by a mortgage company or non-bank financial service provider that manages the entire transaction process.  


Strategy and Portfolio Construction

For most investors, private mortgage investing is part of a broader diversified portfolio strategy. Investment account managers help investors select high-quality funding opportunities in strong residential markets across Canada, presenting them with all the facts and considerations mentioned in the previous section. 

As with other asset classes, there’s no one-size-fits-all strategy for mortgage investment portfolios. Investment account managers help their clients invest in deals that align with their risk tolerance, target return, investment horizon, and overall investment goals while screening for factors such as the borrower’s profile, the value and condition of the underlying property, loan duration, security position, and the total size of the loan relative to the value of the property (loan-to-value ratio, or LTV). 

]Private mortgage investing offers a passive investment opportunity with demonstrable benefits in reducing management costs and increasing portfolio diversification. That’s because, unlike real estate investing, whole mortgage investors don’t have to worry about overhead costs, liquidity constraints, negative cash flow, vacancies, and rising mortgage rates. These factors make whole mortgages less prone to fluctuations in the housing market or overall economic conditions

Historically, mortgage investments have performed well regardless of the market environment. That’s because, unlike publicly traded investments like stocks and bonds, mortgage investments are backed by real assets and are not highly influenced by macroeconomic factors. Whole mortgage investors don’t have to worry about monetary policy, economic data, or corporate earnings statements affecting their portfolio’s performance. Rather, they can focus on funding high-demand mortgages across Canada and earning regular income in the process.

Regulatory and Compliance Considerations

Private mortgage lenders don’t fall under the same regulatory regime as chartered banks and other traditional lenders, giving them more flexibility to lend to underserved borrowers across Canada. Demand for private financing solutions grew significantly in the wake of the 2008 financial crisis, as progressively tighter federal regulations made it harder for many Canadians to obtain a conventional mortgage. 

As such, private mortgage lenders can set their own lending standards, interest rates, fees, and terms. However, lenders must be licensed to do business with the public. In Ontario, for example, this means registering with the Financial Services Regulatory Authority (FSRA) and adhering to all statutes and regulations set forth by the agency. 

Private lenders ensure compliance with applicable laws and regulations through a rigorous due diligence process, which involves conducting an extensive qualification process for each loan, including careful underwriting of each file thorough analysis of each potential borrower’s creditworthiness, financial stability and ability to repay; and conducting an expert appraisal of the subject property and assessing the market in which it is located. 

From loan sourcing and selection through  to closing, the mortgage investment process involves several steps, including initial assessment, pricing analysis, commitment issuance, completion of due diligence,  document and covenant creation, final legal review, and funding. The most reputable mortgage lenders process all deals through a trusted network of law firm partners to ensure transparency, integrity and security. 


Technology and Innovation

As we mentioned at the outset, innovations in fintech set the stage for the eventual growth of direct whole loan mortgage investing. Private lending channels provide borrowers with a greater variety of borrowing options, faster processing efficiency, and more flexibility in obtaining the financing solutions they need. 

New technologies have allowed private lenders to streamline their mortgage lending, adjudication, and portfolio management processes, ensuring a more expedited and automated process when funding deals. For example, lenders like CMI Financial Group have integrated the Filogix system, eliminating the tedious process of brokers having to send sensitive documents manually. In doing so, CMI has become a trusted partner for many third-party brokers. 

At CMI, every mortgage is subject to stringent administrative oversight, supported by industry-leading software to support, automate and optimize critical administration processes, from repayment and default management–including direct payment processing and recouping missed or returned payments–to mortgage monitoring, renewal and discharge. This includes assessing the renewal potential of each mortgage and ensuring all borrower fees have been paid, and any outstanding expenses and/or interest is fully recouped, before a mortgage is discharged.

The Investor Perspective

Whole mortgages are geared toward investors who want to maximize cash flow by becoming private lenders. It’s a capital-intensive process, with the most reputable programs requiring a minimum investment of $500,000 – $1,000,000. However, this initial funding amount is consistent with other forms of private equity investing, where investor capital is actively managed to generate higher returns than public markets. 

Canada’s leading whole mortgage programs are administered by mortgage companies or non-bank financial service providers and have historically outperformed other private equity and fixed-income strategies. Leading programs like the one offered by CMI Mortgage Investments target net annual yields of up to 16%. 

Investment account managers play a crucial role in understanding each investor’s goals and risk tolerance and presenting them with opportunities that align with their objectives. Through their efforts, they ensure a seamless and hands-free investment experience. 

The Future of Private Mortgage Investing

Like other alternative assets, the market for private mortgage investing is constantly evolving, with new and emerging trends set to disrupt the future of direct lending. On the technological side, trends in artificial intelligence, robo-advisors, and neo-banks likely represent the next wave of disruption. On the mortgage lending side, the next two years will be pivotal as central banks signal a shift in monetary policy and traditional lenders come under pressure due to their exposure to the slumping office and commercial sectors.

Investment account managers can’t predict the future, but they should keep their ears to the ground and be prepared to adapt to changing market dynamics. Markets are rarely static, so investment account managers must update their strategies accordingly. The good news is that private mortgage lending is less correlated with public markets, so there will always be opportunities so long as Canadians need alternative financing solutions. 


While the role of the investment account manager is constantly evolving, their job is ultimately to help investors better understand and manage their portfolios. Given the complex nature of private whole loan mortgage investing, this likely requires a more hands-on approach for investors looking to become private lenders. 

For more than a decade, CMI Financial Group has been a leader in the private mortgage investment market, with more than $2.5 billion in successful mortgage placements. Our investment account managers understand the complexities of the private mortgage industry and work closely with investors to present them with the best mortgage investment opportunities, tailored to their needs and preferences. 

To learn more about our whole mortgage investment program, contact us today for a free consultation.

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