Investors & tax

How monthly interest distributions to mortgage investors work

For MICs, syndicators and administrators: how to split collected interest between investors and the company, what to do when a borrower doesn't pay, and how fees and sub-investors fit in.

When a mortgage is funded by several investors, each month’s interest has to be split — fairly, exactly and on time.

The basic split

Each investor has a position (the amount they funded) and a rate. The company keeps the spread: the borrower’s rate minus the investors’ rates.

Example: a $500,000 loan at 10% interest-only, funded by Investor A ($300,000 at 8%) and Investor B ($200,000 at 8.5%).

Calculation Monthly amount
Borrower pays 500,000 × 10% ÷ 12 $4,166.67
Investor A 300,000 × 8% ÷ 12 $2,000.00
Investor B 200,000 × 8.5% ÷ 12 $1,416.67
Company spread remainder $750.00

When the borrower doesn’t pay

Distributions are usually based on interest collected. If the borrower misses the payment, the investors’ shares for that period are held and released in a later run when the payment comes in. Some lenders advance investors from company funds instead — a policy decision that should be applied consistently and recorded.

Fees

  • Management fees charged to investors reduce what they receive; decide whether they are charged on interest earned or interest paid.
  • Referral fees may be paid from the spread or from an investor’s interest.
  • When an investor’s share is held, any fee on it should be held too and deducted when the share is released — otherwise the fee is paid from nothing, or never collected.

Sub-investors

An investor may have their own sub-investors. They can be paid through the head investor (who receives the total and passes it on) or directly — and if the head investor’s share is held, the sub-investors’ parts should be held the same way.

Controls

Distributions move other people’s money. Good practice: one person prepares the run, a second person approves it, payment is made from trust by EFT or cheque, and every investor gets a statement.

How Amortivo handles it

Amortivo calculates each run from interest actually collected, applies each investor’s rate, holds and releases shares, handles management and referral fees and sub-investors, and pays by EFT file or cheque after a second person approves. Statements and T5 preparation come from the same records. See investors & distributions.

Common questions

What is the lender spread on a syndicated mortgage?

The difference between the rate the borrower pays and the rate each investor earns. It belongs to the company (lender or administrator) and is kept when interest is distributed.

What happens to an investor's interest when the borrower misses a payment?

Usually the investor's share for that period is held and paid in a later distribution once the borrower pays — unless the company's policy is to advance it from its own funds.

This guide is general information for Canadian private lenders, not legal, tax or accounting advice. Confirm requirements with your regulator, lawyer or accountant.

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