Direct Mortgage Investment – Private Lending Explained

Investors are always looking for high return investments that provide stability and predictable income. In Canada, one of the most effective alternative investment options is through Direct Mortgage Investing (DMI) and private mortgage lending. These strategies don’t involve buying or managing real estate directly.

Instead, they’re about lending money with a house or property as backup. This way, investors get paid interest while knowing their loan is secured by real estate.

In this guide, we’ll explore direct mortgage investing, private mortgage investing, and how these strategies fit into broader real estate investment strategies. We’ll also cover how the Hosper DMI Program works in the Ontario market and why many investors use it as a reliable way to create passive income.

A Direct Mortgage Investment (DMI) is when an investor lends money directly to a borrower, secured by a real estate property. Unlike investing through a mortgage investment corporation (MIC), where your funds are pooled with other investors, a DMI creates a one-to-one relationship between the investor and the loan.

Here’s how it works:

This structure gives the investor more control compared to pooled mortgage funds.

DMIs come with several advantages that attract experienced investors:

1. Higher Yields – DMIs often pay between 8-14%, far higher than bank products.
2. Control – The investor chooses which loans to fund, tailoring their portfolio to their risk tolerance.
3. Security – Loans are secured against Canadian real estate, reducing exposure compared to unsecured lending.
4. Transparency – Because the mortgage is registered directly, investors can track their investment clearly.

In short, direct mortgage investments offer a way to invest in mortgages with more hands-on control and potentially higher returns than a MIC.

Hosper’s DMI Program was designed for experienced investors who want both strong returns and professional oversight. The program makes private mortgage investment easier while still giving investors control over individual loans.

Hosper’s DMI program includes several features designed to give investors more control, clarity, and confidence in their lending decisions. Below are the key elements that set it apart from traditional private mortgage options.

This balance of high return investments and structured oversight makes Hosper’s program a reliable option for those seeking to invest in private mortgages with confidence.

Private mortgage lending investment is the broader category that includes DMI. Simply put, it means you act as the lender for a mortgage loan, instead of a bank. Borrowers who turn to private lenders may not qualify with traditional banks but still have significant equity in their homes.

As a private lender:

This makes private lending a real estate-backed investment, offering a balance of security and attractive yields.

It’s important to distinguish between direct mortgage investing and MIC investing:

MICs also offer more flexibility for tax planning because investments can be held within registered accounts like RRSPs and TFSAs.

Both are forms of mortgage investing, but DMI appeals to those who want a more hands-on alternative investment strategy.

If you’re considering how to invest in private mortgages, here are the key steps:

1. Work with a trusted manager – Firms like Hosper manage compliance, underwriting, and loan setup.
2. Understand the property – A home property appraisal confirms the property’s market value.
3. Check the Loan-to-Value ratio (LTV) – This measures the loan size relative to the property’s value. Lower LTV means lower risk.
4. Diversify if possible – While DMIs are single-property investments, seasoned investors may spread funds across multiple loans.

Like any alternative investment, direct mortgage investing carries risks:

Mitigating these risks comes down to solid underwriting, careful appraisal, and proper LTV ratios. Hosper emphasizes these checks to protect investors in the Ontario real estate market.

Hosper’s Paragon Process ensures every loan is vetted through strict appraisal standards, trusted underwriting, and accredited professionals, giving investors confidence their capital is consistently protected against unnecessary risks.

In the improbable event of a default, Hosper works only with vetted appraisers from the outset to ensure the asset is neither overvalued nor undervalued. This careful appraisal process establishes a reliable loan-to-value ratio. If enforcement becomes necessary, Hosper also partners with trusted renovation experts to maximize the property’s resale value, protecting investor capital and ensuring the best possible recovery outcome.

A large portion of private mortgage investing involves second mortgages. These sit behind the first mortgage, meaning if the borrower defaults, the first lender has repayment priority.

Why consider second mortgages?

Because repayment priority is lower, second mortgages carry higher default risk. This makes accurate appraisals, detailed borrower reviews, and conservative loan-to-value (LTV) assessments essential safeguards for investors.

For investors looking for passive income ideas, DMIs can be attractive because they generate steady interest payments without the hassle of managing tenants or properties.

Unlike rental income, which may involve maintenance and vacancies, mortgage interest is straightforward. This makes DMIs an appealing strategy for those exploring how to make passive income through investing in Canadian real estate, without becoming a landlord.

Every DMI relies on accurate valuation. A home property appraisal ensures the property’s true market value supports the loan amount.

The Loan-to-Value ratio (LTV) is a key risk indicator:

Professional appraisers and underwriting teams ensure these metrics are reliable. Hosper, for example, only works with accredited appraisers who meet strict standards.

Though DMIs offer flexibility, they operate in a regulated environment. Compliance authorities ensure investor protection and enforce transparency standards. Professional managers like Hosper add another layer of oversight by screening borrowers, monitoring loans, and handling any complications.

This makes DMIs a unique blend of alternative investment opportunities with institutional-grade safeguards.

The Ontario real estate market remains one of Canada’s strongest, with consistent demand across major cities and regions. For investors, this creates opportunities for secure mortgage lending backed by valuable collateral.

Hosper focuses exclusively on Ontario, leveraging its deep knowledge of local markets and property values. This regional expertise ensures that direct mortgage investments are based on realistic appraisals and well-managed borrower relationships.

DMIs are best suited for:

They’re less suited for beginners or those who need liquidity, since commitments are usually at least one year.

Direct Mortgage Investment and private mortgage lending investment offer a powerful way to earn strong returns while investing in Canadian real estate, without owning property directly. By securing loans against real estate and earning interest payments, investors can enjoy both attractive yields and the protection of collateral.

Programs like the Hosper DMI Program make it easier for investors to access this opportunity, offering a range of options tailored to different risk levels and return goals. With yields as high as 14%, hands-on loan selection, and professional management, DMIs are a standout among today’s real estate investment strategies.

For those ready to invest in private mortgages, whether through first or second mortgages, DMIs can provide a structured, secure, and rewarding path to generating passive income in the Ontario real estate market.