RISK VS REWARD FOR MORTGAGE INVESTMENTS Should You Add Mortgage Investments to Your Portfolio ?
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Corporate bonds carry the risk of strength and integrity of the corporation that issued the bonds . Independent rating services such as Standard and Poor ’ s and Moody ’ s have been shown to misjudge the security of many corporate bonds – whether through conflictsofinterest or simple mistakes . Even without misjudgments , the price of a corporate bond fluctuates based on the performance of the company , its industry , and the economy overall . In addition , as interest rates rise , the value of the bonds decrease .
The risks that a mortgage investor faces primarily involve the borrower and the underlying real estate . An investor may choose to work with a borrower with less than perfect credit if there is sufficient equity in the property that it is worth the risk . Alternatively , a property may be marginal , but the borrower has excellent credit . These are the main factors determining the interest rate that an investor can expect on his mortgage investment .
Another factor in determining the rate on a mortgage is the competition for these types of investments . In the past , they were considered one of the best kept secrets in investing . No longer . The competition for mortgage investments has heightened to where lenders are competing for loans . This , in turn , drives down the rates . Good for the borrowers ; not so for the investors . On the positive side , what once was considered an illiquid investment has risen to a semiliquid investment . Although there is not a trading market for mortgages as there is for stocks and bonds , new companies have come to the marketplace in search of