WHAT IS A SYNDICATED MORTGAGE?
A syndicated mortgage is a type of mortgage where multiple investors pool their money to fund an individual mortgage loan. Syndicated mortgages are typically used when the mortgage value required for a development project exceeds what a single institutional or private lender may provide. In Ontario, syndicated mortgage investments are governed by the Financial Services Regulatory Authority of Ontario, and only licensed mortgage brokers are entitled to engage in syndicated mortgage transactions. Examples of when a syndicated mortgage may be used include large-scale commercial development projects, like financing the construction of a new football stadium or condominium development. The investors of a syndicated mortgage are able to make a return on their investment from the interest the borrower pays on the mortgage. The interest amount paid to each investor is proportionate to their investment in the syndicated mortgage. One advantage of syndicated mortgages is that investors are able to spread the risk of borrower default across the investors, thereby minimizing individual investor risk. It is important to note that if the borrower already has a mortgage secured against the property prior to receiving funding from a syndicate of investors, the original mortgage will have priority in the event of default. This means that if the lender for the original mortgage sells the property and there are no funds left, none of the investors of the syndicated mortgage will recuperate their investment. While syndicated mortgages may be an attractive form of investment, it is important to always consult experienced financial advisors and real estate lawyers, not affiliated with the investment project, prior to investing. For more information regarding syndicated mortgage investments and the potential risks involved, visit the Financial Services Regulatory Authority of Ontario’s website.
If you are looking to enter into a syndicated mortgage, contact us to set up an initial consultation where a member of our real estate law team will answer any questions you may have about a syndicated mortgage transaction.
Disclaimer: The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.
1. Financial Services Regulatory Authority of Ontario: Before Investing in a Syndicated Mortgage.
About the Author:
Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.