Direct mortgage investing means your name — or your corporation’s, or your registered plan’s trustee’s — appears on the charge registered against the property. You are the mortgagee of record. Nobody stands between you and the loan.
That is the appeal, and it is also the whole of the trade-off. This article sets out what changes when the charge is yours: the work that transfers to you, the costs that do not get smaller just because the investment is, the arithmetic of holding one loan instead of a slice of many, and the documents that decide the outcome before any money moves.
What “direct” actually means
In a direct mortgage investment you own a debt secured by a specific property. You know the address. You know the borrower’s name, the loan amount, the term, the payment date and the priority of your charge. If the loan performs, the payments are yours. If it does not, the decision about what to do next is also yours.
Compare that with a pooled vehicle, where you own shares or units and the vehicle owns the mortgages. There you hold a proportionate interest in many loans and no interest in any particular one, and the operator makes the decisions. Neither structure is a safer version of the other. They allocate the same risks to different people.
One point is worth stating early because it is routinely misunderstood: being the registered mortgagee does not make you an owner of the property. You hold security over it. Ownership only ever arrives at the end of an enforcement, and arriving there is a cost, not a windfall.
The work that transfers to you
Every function below happens in both structures. The difference is who performs it and who pays for it.
| Function | Direct investment | Pooled vehicle |
|---|---|---|
| Underwriting the borrower and the property | You, or a broker you instruct and pay | The operator’s credit process |
| Appraisal review and value judgement | You read it and form your own view | The operator’s standard |
| Legal file, title search, registration | Your solicitor, on your instructions | The operator’s counsel |
| Payment collection and reconciliation | You, or a licensed mortgage administrator you retain | Built into the vehicle |
| Chasing a missed payment | You | The operator |
| Deciding whether to enforce, and funding it | You, from your own money | The vehicle, from its own resources |
| Renewal, discharge, postponement decisions | You | The operator |
| Diversification across loans | Only if you fund several | Inherent in the pool |
None of this is unmanageable, and investors do it successfully. But it is a role with a workload, not a product with a yield. The fees that a pooled vehicle charges are partly the price of not doing any of it.
A worked example: what the costs do to the arithmetic
The figures below are arithmetic placeholders. They were chosen to show how fixed costs behave as the investment size changes, not to represent any actual loan or any Lendmax opportunity.
Assume a direct investment of $200,000, and assume for the sake of the arithmetic that the loan pays interest at 9% a year — a placeholder percentage, used only so the subtraction has something to work on. Gross interest is $18,000 over a year. Now subtract the costs that a direct investor carries personally.
| Line | On a $200,000 investment | On a $50,000 investment |
|---|---|---|
| Gross interest at the placeholder 9% | $18,000 | $4,500 |
| Your solicitor to review and register | −$1,200 | −$1,200 |
| Appraisal, if you commission your own | −$600 | −$600 |
| Administration at a placeholder 0.25% a year | −$500 | −$125 |
| Net before tax | $15,700 | $2,575 |
| Net as a share of capital | 7.85% | 5.15% |
Two things fall out of this. The legal and appraisal costs are broadly the same whether the loan is $50,000 or $200,000, so they consume four times as much of a small investment as of a large one. And a second loan means a second set of them: diversifying a direct book is not free, which is precisely why small direct positions tend to be concentrated ones.
Concentration: the arithmetic of one loan
This is the part of direct investing that arithmetic settles rather than judgement. A single mortgage either performs or it does not, and the outcome lands undiluted on the person who funded it.
| Scenario | $100,000 in one mortgage | $100,000 spread across 20 mortgages |
|---|---|---|
| All loans perform | Full return on capital | Full return on capital |
| One loan recovers 70% of principal | 30% of your capital lost | 1.5% of your capital lost |
| One loan recovers nothing | 100% of your capital lost | 5% of your capital lost |
| One loan is 6 months late | Your entire income stream stops | Income falls by about a twentieth |
The right-hand column is not a promise of safety — twenty bad loans are worse than one good one, and a pool concentrated in one borrower type, one property class or one city is less diversified than its loan count suggests. The point is narrower: in a direct investment there is no averaging. The specific loan you funded is the entire result.
The documents that decide it
Each of the following is a question of fact, answerable before funding, and each one has closed a file that looked fine in summary.
- The title search, dated at funding rather than at application. What is registered ahead of you, and what has appeared since the application was taken?
- The execution search. Are there writs or judgements against the borrower that attach to the property?
- The tax certificate, and for a condominium the status certificate. Arrears here can rank ahead of your registered charge in many provinces.
- The appraisal, in full. Not the number — the basis of value, the comparables used, and anything the appraiser says about how long the property would take to sell.
- The insurance binder. Does it name you as mortgagee, for the right amount, and is it in force on the funding date?
- The commitment and the mortgage itself. Payment date, default interest, the term, prepayment terms, and what the documents require of you if the borrower stops paying.
What happens monthly, and what happens at default
In a performing month, direct investing is quiet work: a payment arrives, you reconcile it, you confirm taxes and insurance remain current, and you note the maturity date coming toward you. Collection and reporting can be delegated to a licensed mortgage administrator, and in most provinces administering mortgages for others is itself a licensed activity — which is one reason the delegation is common.
At default, the work changes character entirely. Enforcement runs on legal timelines, not investor preferences; the route and its length differ by province; the costs are paid by you as they are incurred, from money that is not the mortgage; and the claim grows with accrued interest and advanced property taxes while the process runs. An investor who has not decided in advance how an enforcement would be funded has an unfunded obligation attached to the investment.
Direct mortgage investing gives you control, visibility and the whole of the return. It gives you the whole of the work and the whole of the loss on the same terms. Both halves of that sentence are the same sentence.
A direct mortgage is not a pooled mortgage investment with the fees removed. It is a pooled mortgage investment with the work, the decisions and the concentration added back.
Questions investors ask
What does it mean to invest in a mortgage directly?
It means the charge against the property is registered in your own name, or your corporation’s or registered plan trustee’s name, so you are the mortgagee of record. You own a debt secured by one specific property rather than shares in a vehicle that owns many mortgages.
Does holding a mortgage mean I own the property?
No. You hold security over it. Ownership only arises at the end of an enforcement, and taking title that way is a cost and a responsibility rather than a gain — you inherit the taxes, insurance, maintenance and the problem of selling it.
How much does a direct mortgage investment cost to set up?
Legal review and registration, and an appraisal if you commission your own, are broadly fixed per file rather than proportionate to the amount invested. That means they consume a much larger share of a small investment than a large one, and every additional loan brings its own set.
Who collects the payments on a direct mortgage investment?
Either you, or a licensed mortgage administrator you retain. In most provinces administering mortgages on behalf of others is a licensed activity, which is why collection and reporting are commonly delegated rather than handled personally.
What is the main risk that direct investing adds?
Concentration. One mortgage either performs or it does not, and there is no averaging across other loans. A single loan that recovers 70% of principal costs a one-loan investor 30% of their capital, where the same loss inside a twenty-loan pool costs about 1.5%.