Syndicated mortgages are an investment vehicle that allows developers access large amounts of funds for projects that traditional lenders generally won’t fund. Most commonly it brings several and sometimes hundreds of investors together to pool their funds for the developer’s early stages, although a single residential mortgage can also be syndicated.

Developers will generally pay a much higher interest rate to access these funds for the initial stages of development, which provides investors a higher rate of return until the developer reaches a stage where they can find a traditional lender (such as a bank) to buy out the existing debt on the project.

A big difference between syndicated mortgages and Mortgage Investment Corporations (MICs), is the fact that with syndicated mortgages, investors can choose which projects they want to invest in and also provides investors the additional security of having their personal name registered on the title as a charge holder against the property.

The biggest risk with this type of investment is knowing which projects to invest in and who you are lending your money to as well as the risk of having your funds locked in until a new lender can be found.

A syndicated mortgage is provincially regulated

Legislation is enforced by the Financial Services Commission of Ontario (FSCO) and all providers of syndicated mortgages must be licensed as a mortgage agent or mortgage broker.

It is vitally important to understand the project. Being aware of the project value is of extreme importance because it helps determine the level of risk involved. Usually the lower the loan to value, the safer the investment.

Syndicated mortgage providers will tell you that you can generally expect a rate of return of 6-9%, but this is only an expected rate of return. Unlike a bond or GIC, the rate is not always guaranteed. Typically the borrower will set aside part of the amount borrowed to pay the interest during the term of the loan but the repayment of the entire principal amount is largely dependent on the success of the project.