Mortgages as Passive Income Investments

Your financial freedom starts from investing wisely.

Over the past few years, passive income has become a frequently discussed topic for Canadians as well as investors across the world.

The topic is especially intriguing for individuals who want to achieve financial freedom by letting money work for them around the clock and regardless of where they are in the world. This way, they can move away from the usual nine to five and do more of the things that they love. There are several ways to earn passive income but it is important to note that different options have varying levels of risk and amount of initial investment and time required.

Mortgage investment as a source of passive income.

Mortgage investment typically refers to investing in private mortgages, which are secured by real estate and guaranteed by the borrower. The borrower of the mortgage makes monthly payment to the lender/investor at an agreed interest rate and repays the loan at the end of the loan term. Given that the mortgage is secured by real estate, should the borrower fail to make monthly payment or to repay the loan, the property can be sold to recoup the investment. Let’s discuss why mortgage investing may be a suitable income stream for passive income seekers.

Key Benefits of Mortgage Investment

Low initial investment

Mortgage investment can be an especially good option for new investors looking to start earning passive income. Investing in a rental property or starting a drop shipping business tend to require high initial investment. When investing through an investment vehicle (such as a mortgage mutual fund trust or a mortgage investment corporation), the initial investment can be as low as $1,000 for some funds. With consistent investment over time, the investment can grow sizeably and become a lucrative source of income.

Low ongoing work required

Several sources of passive income, such as publishing blogs and online courses, require ongoing work for the investor to keep generating passive income. Many passive income seekers have existing obligations and do not have the time to plan and produce such content, limiting the reliability of such sources of passive income. Other than the initial research to source a mortgage investment, there is little ongoing work required to manage a mortgage investment.

Secured repayment

Mortgage investment is considered a debt investment in which the principal investment is to be repaid as a part of an agreement. When done correctly, the principal investment in a mortgage should remain constant through to its repayment. Equity investment in a real estate development or a start-up are higher risk as the repayment of the principal investment is not guaranteed and it can take a long time before the return is realized; nevertheless, if the investment is successful, the investor can be rewarded with a more favorable return.

Premium and consistent return

Mortgage investment provides monthly income at premium yield relative to many other debt investments such as investment grade bonds (e.g. US and Canada 10-year government bond). Junk bonds provide comparable or higher yield than mortgage investment, but they also carry higher default risk.

Simple & understandable

The investment world is constantly changing with “new and shiny objects” to consider. Charging interest on mortgages is a tried-and-tested investment strategy that financial institutions have been actively involved in over the last century. Additionally, because the investment is secured by real estate, many retail investors find mortgage investment easier to understand.

Challenges with Mortgage Investing

There are several challenges with mortgage investment; however, many of these challenges can be mitigated or minimized by investing with an experienced mortgage fund manager.

Sourcing, assessing, and managing mortgage investment opportunities

 It can be difficult for individual investors to source mortgage investment opportunities on their own due to several reasons including access to the market, expertise, size of investment, and various regulations. Should an investment opportunity present itself, many individual investors may have difficulty assessing the risk, structuring the loan terms, and managing the loan through its maturity. An experienced mortgage fund manager would have a team of mortgage originators and underwriters to:

  1. Conduct detailed analysis, risk assessment, and due diligence on the mortgage loan
  2. Determine and negotiate appropriate loan terms (e.g. interest rates, required securities, funding pre-conditions)
  3. Work with legal counsel to register required securities (e.g. mortgage charge)
  4. Administer and manage the loan should any issues arise


Most mortgage loans tend to range from a few hundred thousand to several million dollars. It would be ill-advised for an individual investor to lend a significant amount of their savings on a single mortgage investment. Investing with a mortgage fund can be the answer as investment from hundreds of investors is pooled to invest in a portfolio of mortgages. As such, the investment is secured by multiple pieces of real estate and the risk of any significant loss is minimized.

Tax implications

The majority of passive income sources is taxable. However, mortgage investing can be tax-free as many mortgage investment vehicles accept investments from registered plans like Tax-Free Saving Accounts (TFSAs) or Registered Retirement Savings Plans (RRSPs). Investing using registered plans can be a great way for an investor to accrue tax-free earnings and re-invest the earnings through a Dividend Reinvestment Plan (DRIP) for compound growth. This approach is highly suitable to create a significant source of income long term.


Most investment for passive income do not allow investors to easily exit their investment. This is also true for individual mortgage investment as the investor will need to wait until the loan matures to get repaid. In some scenarios, the repayment can be delayed by a few weeks or months if the borrower requires more time to refinance the loan or to finish their project. Investing with a well managed mortgage fund can alleviate this challenge because:

  1. Mortgage funds generally invested in a portfolio of mortgages; therefore, liquidity events (i.e. loan repayments) can occur on a more regular basis. Nevertheless, not all mortgage funds are created equal as some mortgage funds may be largely comprised of illiquid assets and long-term loans. We will discuss this topic in another article. 
  2. Mortgage funds raise money and receive new investments on a regular basis. This creates a level of liquidity to satisfy investment redemptions.
  3. Larger mortgage funds typically have access to a line of credit from financial institutions. This helps the mortgage fund manager to manage short-term liquidity requirements.
Morrison Financial is one of Canada’s longest-standing private finance firms. During its 35 years in business, Morrison Financial has advanced over $1.5 billion in loans. Morrison Financial operates two mortgage income funds which invest in a diversified portfolio of short-term residential development projects across Ontario. Morrison Financial has retained Belco Private Capital (“Belco”) as its exempt market dealer. A dealing representative from Belco will discuss whether if this investment is suitable for you.

To learn more about Morrison Financial’s Mortgage Income Funds, please visit:

To learn more about Morrison Financial’s Mortgage Income Funds, please visit: