Investing in mortgages is lending money to companies and individuals for the purpose of purchasing properties. In return for your investment, you generally receive interest from the borrower for the period of the loan with an exception of receiving all of your investment capital at the end of the loan period.

The capital value of the investment does not fluctuate because it is generally unable to be traded on the market. As mortgages are unable to be traded, redemptions from these investments may experience delays. As the money is loaned to companies and individuals, the capital value of the investment may decline if a borrower defaults.

Mortgages generally offer a higher potential rate of return than cash due to this default risk. Mortgages also offer a potentially higher rate of return than bonds in a rising interest rate environment and a lower potential rate of return than bonds in a falling interest rate environment. However, mortgage values are also generally less volatile than bonds.

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