We have recently seen the benefits of the “Peer to Peer” model. Uber matches Drivers with Riders, and Airbnb matches Hosts with Guests. BorrowLend MATCH matches Lenders with Borrowers.
And we have also noticed some significant advantages from this model. Uber and Airbnb are usually less expensive than their taxi and hotel counterparts. Uber cars are often cleaner as the driver also owns the car he is driving. Airbnb hosts often provide useful information to guests on local activities and attractions.
Likewise, Peer to Peer lending can offer some significant advantages.
In financial transactions it is often the middle men who reap the rewards. Banks and brokers charge significant fees. In addition, they often take a spread … a spread is when the interest rate charged to the borrower is higher than what is offered to the lender with the difference going to the broker.
Don has been retired for a number of years. He relies on his investment portfolio for he and his wife Cathy to continue living in their suburban home, a home much larger than they actually
need. But they are not willing to downsize yet even though they are empty nesters … after all where would the grandchildren play? Don recently lamented after looking at his most recent statement analysing his portfolio. “They made more money than I did on my investments … but it’s my money!” He also noticed that the bank was moving him from one investment to another and changing a fee each time it did.
Many investors today are concerned about leaving their money in the stock market. Facebook recently had the largest fall in history of any company listed on a U.S. stock exchange. Volatility is increasing. However, the alternatives look bleak. Investing in bonds carries significant risks because of predictions that interest rates will rise. And as rates increase, the price of bonds drops and your asset declines in value. Savings accounts are secure but the return is extremely low, currently averaging about 1%.
In this environment, peer to peer lending presents an alternative. Rates can range from 3% to up to 15% based on the credit worthiness of the borrower. And BorrowLend MATCH does not charge a fee for its services.
But are these investments safe? Are they secure enough for me to invest my savings?
The security of mortgage investments depends on something called the “LTV” or loan
to value ratio. This is the ratio of the amount the loan to the value of the home. This is
the amount available to the lender should the borrower fail to repay the loan. It is recommended that this be at least 80%. This means that if the value of the house drops, then there is some buffer to repay the loan. Over time real estate has offered some of the best security available.
The power of sale clause is written into a mortgage authorizes the mortgagee to sell the property in the event that the mortgagor does not repay the mortgage debt. Power of sale allows a lender to sell the mortgaged property and recover their investment. This is different from foreclosure, where the lender takes title to the property. It is this clause which mitigates the risk that the borrower will not repay the loan.
So, in summary, Peer to Peer is a good approach if you are dissatisfied with the return you are currently getting on your investments. If you are upset by the amount of fees you are paying.
And if you want to avoid the risks associated with the stock and bond markets.
We are finding that people like to borrow and lend from those within their own community.
Our website is in Chinese and Tagalog, and often people like to do a transaction with people who speak their language.
For borrowers, Peer to Peer lending provides an opportunity to obtain financing that might not otherwise be available. It also provides a way to reduce the costs both in terms of fees and spread. (Borrowers pay all of the costs and fees associated with mortgage loans).
Take for example:
Doug and Mary who live in a small town outside of Toronto. They have friends who are hosting Airbnb guests. It seems like a great idea, providing extra income while enabling them to connect with interesting people from all around the world. Mary who has recently retired as an art teacher would like to make crafts that she can sell on Etsy, the e-commerce website focused on hand-crafted items. The problem is that the bathrooms are in serious need of updating and renovation. Also, a room needs to be set up in the basement as a studio for Mary. Both of these ideas will provide income but it is the additional upfront costs that are the problem. A peer to peer private mortgage may be the solution.
Yusuf is originally from Turkey, and has lived in Toronto for 10 years with his wife and two children. He drives fulltime for Uber and makes over $70,000 per year. His wife is an IT professional and works on a contract basis. Although between them they earn over $150,000 per year they are not able to qualify for a conventional mortgage from a bank. They are willing to pay higher than market rates even though their loan to value ratio is good, less than 70%.
Providing a mortgage to Yusuf and his wife is a good investment. Interest will be significantly higher than market rates. The loan is relatively secure because of the low loan to value ratio, and if they are unable to make the payments the home will be sold under power of sale as specified in the mortgage document.
I know what you are saying … all this sounds too good to be true. Where does the company make its profit. We make it on advertising fees from lawyers, real estate agents, appraisers and brokers who are all interested in making you aware of their services. Their advertising enables us to fund the site on a no fee basis.
BorrowLend MATCH is a Win-Win all round!