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FAQ's
When will I get my monthly payment from the mortgage(s) I am invested in?
A mortgage can be prepaid in full or in part or collected monthly. If prepaid, interest is paid to the investors soon after the mortgage closes. If the borrower pays monthly, payment to investors is made within 10 business days of Mazoan collecting the payment from the borrower(s). This is to allow for funds to clear Mazoan’s bank account ensuring no NSF from the borrowers.
If invested in registered funds, the funds will then be sent to Trustee company holding the registered account(s) of the investor(s) and they will allocate the funds to each investor accordingly.
If invested in cash, a deposit will be made directly to your bank account.
What happens after the investor approves to have their funds invested?
Once Mazoan has received all the documents properly signed by the investor(s) on the mortgage, Mazoan issues lawyer instructions and provides these documents to the lawyer. The lawyer will review the documents to make sure it reflects accurately the proposed transaction and will close the mortgage by requesting funds from either the investor(s) if cash or from the trustee company holding the registered funds on behalf of the investor(s). These funds will be sent to the borrower’s lawyer and any other parties (creditors,…) listed in the use of funds being advanced.
Will I receive tax documents regarding my investments from Mazoan and when?
If you have invested cash into mortgages, Mazoan will either mail you or email you (based on the selection you made on the KYC form at enrollment with Mazoan) before the end of February of the following year. So for interest income earned in 2018, you would receive the tax slip for interest income earned at the latest by end of February 2019.
For any investments that were funded from registered accounts, like RRSP or TFSA, there is no requirement to provide tax slips.
How are investors selected for mortgages?
Investors are selected for mortgages based on their investment criteria, amount of funds available and how long they have been waiting to have their funds invested.
We try to have funds invested within 6 weeks of granting Mazoan access to these funds for investments. But we do not control when borrowers will need mortgages, if their files will qualify for our lending criteria and if they will accept our terms.
Why are Mazoan mortgages only for 1 year term?
Mazoan issues one year term mortgage only as it gives Mazoan underwriting team and our investor(s) the opportunity to review the property and the borrower(s) financial situation after a year.
Each mortgage also comes with an exit strategy for the borrower, which is usually that they can refinance both first and second mortgages into a first mortgage at a cheaper borrowing rate. Issuing longer term on the second mortgages would deprive the opportunity for the borrower(s) to reduce their financial borrowing cost after a year.
Why does a borrower need to get a second mortgage from a private lender?
Firstly, what does the borrower need the funds for? Common reasons include:
- Debt Consolidation
- Obtaining funds for purchasing another property
- Paying for renovations
- Family debt and divorce settlements
- Business investment
Secondly, why can the borrower(s) not get these funds from a traditional financial institution? Common reasons include:
- Timing of the funds requirement. Banks are usually slow to review files and advance funds.
- Borrower(s) may not meet all the lending criteria the banks have, either from their own lending criteria or the ones imposed to them by the regulators (Office of the Superintendent of Financial Institutions, OSFI) .
- With the recent changes made by OSFI and governments (Provincial and Federal), more and more Canadians do not meet such lending criteria and need to borrow directly from other Canadians.
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How is the investor's second mortgage investment protected?
All mortgages invested through Mazoan Inc. are secured by a registered lien (mortgage) on the property with the Land Registry Office of Ontario, similar to a first mortgage. The property provides the security to the lender(s) for the loan provided. The main protection comes from the remaining equity within the property. For example, if the property is valued at $1,000,000, and there is a 1st mortgage of $650,000 and Mazoan approves a 2nd mortgage for $130,000, combined loan to value becomes 78%, therefore the remaining equity equals $220,000.
How does Bankruptcy affect my mortgage loan?
Personal Bankruptcy and Consumer Proposal deal with unsecured debt. The only way to discharge a mortgage registered on title is to pay it out from available funds, alternative financing or from the proceeds of the sale of the property. So neither Bankruptcy or Consumer Proposal dismiss a borrower from their obligations under a mortgage loan. It is also important to note that a mortgaged property cannot be sold or transferred without discharging the mortgage. That is why all real estate transactions in Ontario require the work of real estate lawyer(s).
What is Loan to Value, LTV?
The LTV ratio (Loan To Value) represents the share of value of a home which is borrowed via debt (from financial institutions or private lenders) against the total overall value of the home.
For example, if a house has an appraised value of $500,000 and a first mortgage against it of $200,000, the LTV for the first lender is 40% (200,000/500,000).
If the owner of that house requires additional funds via a second mortgage of $150,000, the LTV for the second mortgage would be 75%, which is total debt of $350,000 (first of $200,000 plus second of $150,000) divided by value of the house $500,000.