Hello! Today’s side hustle post is by a new online friend of mine. You can check out other posts in my side hustle series here.
I created a challenge for myself to create enough passive income to replace my living expenses- but there was only one problem. I run a business and didn’t have time to take on side hustles that required a time commitment on my part.
I needed a zero-time side hustle that could bring in some cheddar. Sound impossible right? I thought so too…
Until I discovered second mortgages.
What is it?
Not only do you not need any spare time but you also don’t need any cool skill or talent to tap into. All you need is some extra money.
Second mortgage lending is when you offer your cash to people looking for small loans and put a lien against their property as collateral. Since you charge interest on the loan (in the range of 9-15%), you happily collect your interest cheques monthly.
That’s it.
Here’s how it works.
Essentially its private lending.
You become the bank lending out your cash as loans to people.
There are people who need money but are having a hard time getting a loan from a traditional bank- perhaps they just went through a divorce and have bad credit or have a job that pays cash incentives so it doesn’t show on their income statements.
What they do have is a home, and preferably one with equity. Even more preferably is a home with much more equity than the loan they are asking for.
The loans are typically between $50,000 – $100,000…this is the amount of cash you’ll need to have.
In my case, I didn’t have that kind of cash at first…so, I started with $10,000 and paired up with someone else who had much more cash for my first deal.
We worked with a few mortgage brokers who specialize in these mortgages and have clients looking for money. We told the mortgage broker how much we had collectively to lend out and they called us when they had a client.
The broker sends over the borrowers profile (their financials, how much equity in their home, etc) and we decide if the risk level works for us.
The risk level is based on how much equity the borrower has on their home…more equity equals less risk which also means less interest you can charge.
Typical interest charges on these loans are between 9% for very low risk deals to as high as 15% for homes that are pretty much maxed out. The reason you are able to charge such high interest rates is because you are lending money to people having a tough time going through a traditional bank.
That’s why these deals return such nice profits.
This was my first deal:
The home was valued at $600,000.
The current mortgage (1st mortgage from the bank) was $300,000.
Therefore the equity was $600,000 – $300,000 = $300,000.
They were looking for a $100,000 2nd mortgage.
Because there was a huge buffer between the value of the home ($600,000) and the total debt (1st plus 2nd mortgage= $400,000) this was considered a low risk deal ($600,000 – $400,000 = $200,000 buffer).
We charged them 9% interest to loan the money for one year.
So my $10,000 made me $900. Then I got back my $10,000 at the end of the term of the loan.
2nd mortgages are typically short term mortgages…i.e. 1 year. So the good news is that your money is locked in for a short time period, which is nice if you plan to use your extra savings for something else in the future.
The bad news is that every year you have to look for new deals.
The borrower pays for all the lawyer processing fees to register the loan on the borrower’s property as collateral. As well, they pay the mortgage broker admin fees for finding them the loan money. So, there are no fees for the lender (just the money you’re lending).
There is no regular maintenance, you just cash in monthly interest cheques.
How you can do it too.
Contact mortgage brokers that you know or that friends and family can refer to you who are involved in 2nd mortgages.
When they present a deal to you look at the neighbourhood where their home is located…is it a desirable area? Are home prices in the area relatively high?
The package you are given will also show you pictures of the house both inside and outside. Is the home in good condition and well-maintained or outdated and falling apart? They will also give you the details of what a professional appraiser has valued the home at.
Review the risk level. The package will also let you know how much debt the home currently has. Compare it to the appraised value of the home. Are they maxing out the value of their home with debt or is there still wiggle room? You will have to determine your own risk levels.
If you are on board with the deal. Have your mortgage broker and lawyer connect to finish the deal. You’ll give your lawyer a cheque with the amount you are lending out.
Then when the deal closes they will give you your monthly cheques.
What’s the worst that can happen?
The absolute worst that can happen is that the borrower stops paying their mortgage and loan on the home and the property goes into foreclosure. You’ll have to discuss with your lawyer the foreclosure rules in your area to know your rights.
I’m from Toronto, Canada so if the home goes into foreclosure than I am entitled to be paid back my loan amount when it is sold. This is why in the initial stages of examining a deal its super important to look at the value of the property and compare it to the total amount of debt the property already has registered. Because in the worst case scenario of foreclosure you’ll want to make sure there’s enough equity in the property to pay you out.
So that’s my zero-time hustle which can still produce you a 9-15% return on your moolah.
Happy Hustling!
——-
Lisa Colalillo aka. Lisa in the city is a real estate expert. Selling real estate in the Toronto area, and produces the online show Lisa in the city TV which teaches ambitious entrepreneurs about money and creating wealth. You can find her at www.lisainthecity.ca
Is this a side hustle idea you would be interested in? Why or why not?
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Taylor Lee says
This seems a lot conceptually like P2P lending. I’d be super afraid, though, of tying up so much capital in a single investment like that, since I imagine collecting on a foreclosed property would be a nightmare. Super cool idea though and definitely one I’d consider when I have extra money to play with.
Lisa says
Hey Taylor Lee,
I’m not as familiar as P2P lending…from what I understand though the only difference here is that with 2nd mortgages you get to register a lien on their property. Is that the same?
What I personally really like about this side hustle is that the return is high 9%++
(that’s super hard to find), there’s almost no time commitment, and they are short term contracts…usually a year or less so your money isn’t tied up.
THis investment vehicle has honestly been a game changer in my finances.
xo Lisa in the city
Amy says
Interesting idea. I’m not sure I’d be comfortable with it – not that I have the money, anyway – but I didn’t realize that it was even possible to d such a thing. Thanks for sharing!
Lisa says
Hey Amy,
I get it, it’s so important to be absolutely comfortable with whatever you’re investing in.
I think that when the time is right, if you look more into it you’ll be able to know for sure.
xo Lisa in the city
Melane @ Good Job Mom says
I always learn something new over here! There are so many ways to make money work for you, thanks for sharing.
Lisa says
Hey Melane!
Ain’t that the truth, so many ways to get that moolah lol.
xo Lisa in the city
Stefanie @ The Broke and Beautiful Life says
Ah that would make me nervous- but that might just be because I’m unfamiliar with it. Is there a timeline for when you’d absolutely have to be paid your loan back in full?
Lisa says
Hey Stefanie,
Definitely when you don’t know enough about it, or it’s the first time you’re hearing about this… then there will always be uncertainty.
For me, I love playing “bank” and I bet you will too, as you learn more about it.
xo Lisa in the city
Christina @ Embracing Simple says
Interesting idea, but one I don’t think I’d be comfortable investing in myself. Even if I did have that much extra money to put towards investing (I unfortunately don’t), it would make me nervous to put it all into something like this. Very cool to learn more about 2nd mortgage lending though, I’ve been hearing a lot about it lately but didn’t know all of the details involved.
Lisa says
Hey Christina,
Absolutely, whatever you decide to put your money towards make sure you are comfortable and understand it…otherwise you’ll be totally stressed when you don’t need to be.
I’m curious, what makes you nervous about it?
Christina @ Embracing Simple says
It might just be that I am still new to the concept, maybe I could eventually warm up to the idea 🙂
Lisa says
I was too Christina, I totally get it.
Something to look into when the time is right for you! 🙂
xo Lisa in the city
Jon @ Money Smart Guides says
Very interesting!! This just proves if you look hard enough, you can find a side hustle to bring in extra money, no matter your skills or free time. Great job finding this one.
As for doing this myself, I think I would pass on it. It’s a cool idea, and as long as the law is on your side to get your money back when the house is sold, the risk is low. But, it could be years before you get that money back and the headaches of the foreclosure process aren’t worth it for me.
Lisa says
Thanks Jon!
In Toronto (where I’m from) these loans are registered against the house, just like a bank’s mortgage…so if the owner doesn’t pay, their house gets taken over by the bank (aka. moi). So I’m pretty much playing “Bank” like in Monopoly lol.
But before proceeding, you’ve got to look into how they get registered in your town/city.
Nicole Carter (Weasley) says
This is an interesting idea! Unfortunetly I know nothing about mortgages or houses as I don’t own my own home but hope to someday!
Lisa says
I’m sure you will soon Nicole!
yay!
xo Lisa in the city
Elroy says
Wouldn’t the worst thing be another ’08? Forecolsure isn’t a problem if there is plenty of “equity,” there’s a component of market risk as well. And the problem with being the second mortgage is you are not the first in line.
Lisa says
Hey Elroy,
Great point!
Remember, when a market tanks like in ’08 the only people who have problems are those that can’t pay their bills and/or have to sell.
So absolutely there is risk which is why you need to see what level of equity is in the property (because you’re in 2nd position) and what your comfort levels are. This is also why I mentioned less equity in the house will allow you to charge even higher interest rates (i.e. 15%).
For me personally, the fact that these loans are less than a year term make it much easier and comfortable to what’s happening in the market.
To be totally hoest though, if the market were to completely turn (like, I mean values went down by 50%) I would be the first to know if they were having problems paying (because I’m registered on the property) …I would see that as an opportunity to make a deal with the bank in 1st position and buy the property at a super discount.
xo Lisa in the city
Andy says
Wow, does your reply sound naive, Lisa! Do you fully appreciate what happened in ’08? The secondary credit markets began to dry up in ’06 because lenders were issuing too many bad loans, and huge financial institutions like Lehman Bros. were repackaging this junk grade debt as grade A investments, which caused them to go under, and initiated a worldwide recession. The housing market tanked because no one could get mortgages, and even solid businesses couldn’t get the short term financing they depended on to meet payroll! By the time this was understood, it was too late to stop the downward spiral.
There were millions of people who couldn’t pay their bills – not just a few as you seem to imply – and they couldn’t sell their homes because no one could get a mortgage to buy them. It was a huge cascading collapse that was only stopped when the governments around the world stepped in with several emergency stimulus packages, two of which in the US were in the trillion dollar range.
Major lenders, including Commonwealth, this country’s largest lender, had issued too many subprime loans and went belly up. (Your loans would also be in the dubprime category, by the way) The fact that they held registered liens, and were first in line, didn’t save them. The thousands of properties they foreclosed on couldn’t be sold, so their values kept plummeting. Anyone holding second mortgages on these properties was simply out of luck.
Unless you have plenty of cash in hand to “make a deal” with the bank that holds the first mortgage, and they actually pay any attention to you, you won’t be taking possession of that property. Don’t count on using the money you loaned the borrowers either; that’s already gone. And you’d be bidding against all the other well-heeled speculators who have the cash to buy the property outright on the cheap. Even if you succeed, don’t count on turning a profit anytime soon, or ever recovering your original investment… it’s likely to take the market many many years to recover should anything like ’08 happen again. In the meantime, you’ll incur the costs of evicting the current owners, and you could be faced with having to make major renovations should the angry former owners trash the premises and steal the appliances, as many did when they were dragged through foreclosures back then. Sadly, desperate people sometimes do desperate things.
I don’t mean to rain on your parade, but you seem to think it would be a cakewalk to collect on this debt if it goes bad, and even that it will work to your advantage. Maybe in some fantasy world it might, but that is not at all what happened in the crash of 08!
Lisa says
Hey Elroy,
I think you may have misunderstood what I was trying to say.
As a real estate agent and investor with a number of properties I was intimately aware of the severity of 2008…because I work it that market.
What I was saying is that for people who do not require refinancing or are able to continue carrying their homes…they are able to ride the downturn.
In fact the reality is that those are the people that make the most money in these market changes. Because a lot of people go from homeownership to tenants …and so if you are in a landlord position you can make a lot of money.
The financial hit happened in fall ’08 and by mid ’09 I had everyone with saved up cash wanting to purchase property because there were fire sales everywhere. We were even looking at hotels and entire condo projects that were priced at $0.10 on the dollar of prices just a year before.
So I can understand your sensitivity in those times…but the reality is that for people who save their money in liquid /accessible form are strategically waiting for opportunities like ’08…it’s actually how fortunes are made. And if you are able to set yourself up to ride the next market wave you’ll have those same opportunities and benefits.
I hope that’s more clear for you.
Xo Lisa in the city
Andy says
Hi Lisa,
So, to get to the crux of Elroy’s question, when all those fire sales were going on in 2009 and properties were being sold for 10 cents or even 50 cents on the dollar, what happened to the investors who were holding 2nd mortgages on those properties?
Here’s a real life case in point to help answer that question: We bought a condo in 2010 that was a foreclosure, like practically everything that was on the market at that point. We got it for about 50% of what the original owners paid in 2007 when the place was first built. We didn’t know them, they were long gone by then, but we did find out what happened to them and their creditors.
They were a successful real estate agent and her husband who had paid about $650K, and had a conventional first mortgage with Countrywide, with a down payment of 20%. They both had jobs and apparently wanted to start a business on the side, so they used the equity in their new home to finance it with a second mortgage which was “secured” by a registered lien against the assessed value of the property. Then came the real estate bust in ’08. Her retail real estate sales dried up, he lost his job, their new business went under, and when they couldn’t pay the mortgage, Countrywide foreclosed. They ended up living in a borrowed trailer, with no assets or income to pay their bills, scrambling to find work, and had to declare bankruptcy, leaving their creditors with little or nothing.
From the foreclosure proceedings, we learned that with their first mortgage under water, the second mortgage was dismissed, despite the lien that the 2nd mortgage holder had on the property. With so many loans under water, and after making a lot of high risk loans themselves, Countrywide, the largest mortgage lender in the US at that time, went bankrupt and their assets were assigned to their creditors. The condo we bought ended up being owned by “Fannie Mae” (FNMA), and they continued to hemorrhage money the longer they held properties like these, so they set up special programs to get them sold, even at a loss to themselves. As you probably know, FNMA is one of a couple of quasi-governmental agencies that fund the secondary mortgage market here; they’re not supposed to end up owning property, but that’s what happened when the primary mortgage market dried up.
The bottom line is, we did very well being able to buy this condo at 50% of what most of our neighbors paid a couple of years before, just like those folks you mentioned who had the means to acquire properties in Toronto during the “fire sales.” But what happened to investors who had held second mortgages at the time the market tanked? They lost their money, regardless of the fact they held registered liens against properties that just lost 50 to 90 percent of their assessed value.
Your post was originally about making money in the short term private second mortgage loan market, not by speculating in undervalued real estate acquisitions, which usually require a lot more cash and have a much longer horizon before you turn a profit. You said in your post that these 9% loans are “very low risk,” and that investing in them requires “zero time” and “no special skill or knowledge”, but those statements don’t really ring true, and they don’t correspond to the caveats I found posted on the websites of mortgage brokers in Ontario who are in the business of arranging the very loans you’re advocating.
Am I right, or am I still missing something?
David Holder says
There is no way I could do this unless I had money to “gamble” with. I have always felt a second mortgage is one step closer to bankruptcy. I did a second mortgage to update my home and it was a horrible decision that I couldn’t get paid off fast enough.
Lisa says
Hey David,
You definitely have to stay within your comfort zone.
As a real estate agent, I do keep track of the market more closely. And I also like to invest in markets that I completely understand.
Everything isn’t for everybody.
xo Lisa in the city
Kayla @ Femme Frugality says
Interesting idea. As a credit analyst at a bank, I’d probably be very risk adverse since I’ve seen a lot of deals go bad even with the strictest criteria. I think lending via P2P might be a little more secure, but I don’t know that for sure. Thanks for sharing!
Lisa says
Hey Kayla,
I don’t know P2P lending as well so can’t really comment. But I’d be interested to understand it better.
Why I LOVE 2nd mtgs, is that I am comfortable lending when I have secured collateral like real estate, where they register my lien on title.
xo Lisa in the city
Becky says
It definitely sounds like an intereting investment opportunity. Making 9% back on your money in one year sounds pretty good to me. I currently don’t have even $10,000 saved up, but if I did, this would definitely be something I would consider doing with my money. It would make me nervous though that a large chunk of money is resting on the hope that one person pays their mortgage payment. But since a foreclosure would pay you as well, it makes it seem a bit more stable.
Lisa says
Hey Becky,
It’s been awesome for me..but definitely the more you understand the more you can decide what works for you and what doesn’t…for anything in life really.
But for me, 2nd mortgages have been a huge game changer.
xo Lisa in the city
Becky says
Yeah, they sound pretty cool. Also I would want to look into what would happen to your money if the house was destroyed (fire, flood, etc.) to make sure I would be able to get my money back if those happened as well.
Lisa says
Hey Becky,
Great Q!
Homeowners typically carry insurance on the property, especially for fire /water damage,etc.
The owner also agrees (in the contract) to continue carrying such insurance during the term of the loan. And since you have an interest in the property the insurance on the company always sends you updates on the insurance status of the property.
So it’s a great idea to review policy with your lawyer for extra comfort.
i love that you asked this because it shows that you’re savvy and thinking!
Xo Lisa in the city
Jayleen @ How Do The Jones Do It says
Interesting concept! Not sure if it’s one I would be willing to take on. We lent money to a family member and it took us years to get it back. Yes, we had the property in our name, but also didn’t want to be the bad guy. It’s a lot to think about.
Lisa says
Hey Jayleen,
OMG…that is super sensitive to deal with.
You want to help, but don’t want to get screwed either.
I think if I had a family member who needed money I couldn’t be the one to lend them money…its too close for comfort. It’s almost better to just gift it.
The people I lend money to never meet me…they deal with the mortgage broker not me, so even if by chance I knew them, they would never know the money came from me.
xo Lisa in the city
Amanda @ My Life, I Guess says
Sounds like a great idea! But I can’t even finance my own mortgage at this point in my life, so we’ll have to shelf this idea for now – but hopefully I can look into it more in the (not-too-distant) future 🙂
Lisa says
Hey Amanda,
Best of luck and when the time is right for you…definitely look into it more.
xo Lisa in the city
Lisa says
Elise,
Girl, I love it too. It’s made me a ton of money playing “bank”.
xo Lisa in the city
Rust says
My dad did this for years and made a substantial return on his money. Excellent article!
Nicole Dz says
Wow extremely helpful information and great idea! Love this!
Pamela Gurganus says
This sounds great for people who have the cash, contacts and feel comfortable doing it! Thanks for sharing.
kemkem says
I’ve been the recipient of a private second mortgage. When l bought my first house, it was just after a major downturn in the L.A market. The owner gave us a second mortgage on the house, and he had a lien recorded. It worked for us, it was structured as a 5 year loan, but we made sure not to have a pre payment penalty, just like we did for the first loan. We were able to pay it off in 2 years, once we had enough equity in the house to get a HELOC. What l am unsure about is where you come in as a second lien if the house goes into foreclosure or short sale. In California, at least in the old days, the bank gets first dibs, then comes the mechanic liens (lets say they owe contractors or property taxes etc) and the individual, meaning you as a private loan..gets whatever, if anything is left, since the house is sold at a great discount, and even the first lien gets pennies on the dollar. It’s risky, but if you have your ducks in a row, it could be a good deal. I almost carried a second loan later on in life, but ultimately decided against it.
Darlene says
I probably know just enough to be dangerous as it’s been a few years since I’ve carried notes..but as I seem to recall, when you carry a 2nd you’re not protected in the even to foreclosure?
Am I wrong on this?
And maybe it depends on the state? I’m in Texas.
darlene
Dimana Dyakova says
In my country such things are not possible, but in any case it sounds interesting 🙂
Jayson @ Monster Piggy Bank says
Mortgage lending seems to be a good idea. I just hope people would always commit to paying and they wouldn’t have to be reminded when to pay because that cause some time in our part.
DC @ Young Adult Money says
Sounds interesting, but I’m curious whether you’d just be better off investing in an index fund? Sure, there’s short-term risk of the market not returning 10% each year, but on average the stock market does return 10%/year. It takes less time and effort, too, and no foreclosure risk. Just presenting a counter-argument that there may be better places to park your cash.
Andy says
“Zero-time”? “Low risk investment”?? “No skill or talent needed”??? “playing ‘Bank’ like in monopoly”??!!
Whoa! I’m not a financial adviser, but after working 25+ years, and with business certifications, in the financial services industry, this post really jumped out at me! When something seems too good to be true, generally it is.
Now, I’m not saying you can’t get a good return or make money on this type of investment – of course you can. But you can also lose your entire principal and any interest you may have been counting on. If you’re thinking about doing this, you really should invest a good bit of time understanding what you are getting yourself, and perhaps your partners, into.
While a second mortgage is technically “secured” by a registered lien on the property, it won’t help you very much in the event of a foreclosure. Even if you, as 2nd mortgage holder, decide to foreclose because of nonpayment, your lien is likely to be subordinate to the primary mortgage holder, who generally has first dibs on the proceeds from the sale and holds all the cards. They have no fiduciary obligation, nor a financial incentive, to protect the interests of other lien holders, registered or not. They will most likely press the court for the right to auction or sell the property as quickly as possible, and for significantly less than its appraised value, and they will be happy to recover their own investment, plus legal and court costs, insurance and property management costs, etc. incurred before the sale.
If you google “can second mortgage foreclose,” here’s the first entry that comes up in big bold letters:
“Generally, a second mortgage is canceled or extinguished in foreclosure proceedings. You still owe the money you promised to pay in your loan document, but the junior lender can no longer look to your property as a source of payment.” So much for your secured, registered lien. You can’t get blood from a turnip, as they say. Of course, your legal rights may vary depending on the jurisdiction, but you are definitely looking at a significant investment of your time, plus legal fees to take the borrowers to court, and in the end, potentially losing all the money you invested.
Although there’s a good chance your “secured” interest will go up in smoke in a foreclosure, you may still be able to sue the borrowers to recover as much of your investment as possible. Keep in mind however that they were unable to qualify for bank loan in the first place, and if they declare bankruptcy, the court could dispense with your claim completely. This is the real “worst case scenario,” and it could occur for a number of reasons that are not taken into account when your loan was “qualified” solely on the basis of the “loan-to-value (LTV).” The real risks in this type of loan depend on the borrowers’ ability to pay it back, and on what the actual sale of the property nets, not on the LTV. Remember, the appraised value of the property is merely an estimate at the time of the loan, not a guarantee of what the property will be sold for, especially in a foreclosure. If the market tanks as it did a few years ago, the LTV could be underwater when it comes time to sell. Also, the borrowers’ creditworthiness is not really part of the equation in qualifying them for this type of loan, but it’s probably the most important factor.
The structure of the loan you described is also a factor to consider. It’s called a “balloon mortgage,” i.e. the payments cover interest only until the end of the loan, then the entire principal comes due at once. Even the mortgage broker sites I checked in Ontario caution the borrowers that these loans are “high risk” and should be taken “only as a last resort.” Balloon mortgages are among the most likely to default at the end, because the borrowers have to come up with the entire amount they needed to borrow in the first place, after paying out significant amounts in interest. Whatever circumstances put them in this position in the first place will have to have completely changed in a very short period of time for them to make that final payment.
It’s completely possible that everything will go just fine, you’ll get all your money back and receive your interest payments on time, but you should recognize and understand the risks you are undertaking. Just don’t invest more money than you can afford to lose if it all goes south! When it comes to investing, you would be wise to “diversify your portfolio,” i.e. place only a percentage of your available funds in “high risk / high return” instruments like second mortgages or aggressive growth funds, and be sure to get the advice of a qualified financial adviser or chartered financial consultant who has a fiduciary responsibility to you in writing, to assess your “risk tolerance” before you venture out on your own into something like this!
By the way, as I said, I am not a financial advisor… I just know enough to realize there are a lot more potential red flags here than this post might suggest.
Kimberlyn Rodriguez says
This is an extremely interesting idea! It’s one that I would personally be uncomfortable with. But stiff, I’m sure it’s right for some people. I would just be scared to invest all that money!
Michelle L says
Interesting idea.
Tennille says
Thanks for taking the time to write and share this post. It sounds like an interesting concept, however it is something us “little people” would never be able to do as it requires so much up front capital.
Rust says
This method seems like such a win-win for all parties involved. Your posts stay with me and give me a lot to think about.
Michelle L says
Never thought about this before, but its a good idea.
Bill says
Second mortgages are the devil! I am a victim of 2008 and still haven’t recovered. That is why I am looking at ways to make more money. I wouldn’t touch either side of a second mortgage with the proverbial ten (make that 1,000) foot pole. Never again!
Scott says
Didn’t realize that this is possible and very interesting idea, But I would recommend before going for a second mortgage make sure you have a stable solid income source.
vicjoshi says
Exceptionally great !! This equitable demonstrates on the off chance that you look sufficiently hard, you can locate a side hustle to acquire additional cash, regardless of your aptitudes or available time. Extraordinary occupation discovering this one.
With respect to doing this without anyone’s help, I think I would go on it. It’s a cool thought, and the length of the law is on your side to recover your cash when the house is sold, the danger is low. In any case, it could be years before you recover that cash and the cerebral pains of the dispossession procedure aren’t justified, despite any potential benefits for me.
Scott Nell says
The structure of the loan you described is also a factor to consider. It’s called a “balloon mortgage,” i.e. the payments cover interest only until the end of the loan, then the entire principal comes due at once. Even the mortgage broker sites I checked in Ontario caution the borrowers that these loans are “high risk” and should be taken “only as a last resort.” Balloon mortgages are among the most likely to default at the end, because the borrowers have to come up with the entire amount they needed to borrow in the first place, after paying out significant amounts in interest. Whatever circumstances put them in this position in the first place will have to have completely changed in a very short period of time for them to make that final payment.