Why Investing in Mortgage Notes Beats Certificates of Deposit

Are you tired of seeing your hard-earned money languishing in low-yield investments like Certificates of Deposit (CDs)? If you’re nodding along, I’ve got some exciting news for you: Mortgage notes might just be the golden ticket you’ve been searching for in this era of rising inflation.

The Story Behind Certificates of Deposit

Certificates of Deposit have been a staple in the investment world since the early 1960s. Born out of a need for a safe and secure investment option, CDs gained popularity due to their fixed interest rates and government backing. During times of economic uncertainty, individuals turned to CDs for stability and peace of mind.

Over the years, the popularity of CDs grew, becoming synonymous with a low-risk, low-reward investment strategy. However, times have changed, and with the current economic landscape, exploring alternatives like mortgage notes could be the key to unlocking greater financial success.

Why Mortgage Notes Are Better

Let’s talk about why diving into mortgage notes could be the savvy move you’ve been waiting for, especially in the current economic climate where inflation rates are on the rise.

First things first, what exactly are mortgage notes?

Simply put, they’re essentially IOUs secured by real estate. When someone takes out a mortgage to buy a home, they sign a promissory note promising to repay the loan with interest over a specified period. Now, here’s where we come in as investors: we can buy these notes from banks or other financial institutions, essentially stepping into the shoes of the original lender.

Now, why choose mortgage notes over the tried-and-true CD? Well, let’s break it down.

1) Beating Inflation

When it comes to CDs, the risk is relatively low. They’re typically FDIC-insured, meaning your investment is protected up to a certain limit, providing a level of security that’s hard to beat. However, that security comes at a cost – lower returns that might not keep pace with inflation.

Inflation, the silent enemy of stagnant money, erodes the purchasing power of your cash over time. With the current inflation rates creeping up, the returns from traditional CDs might not even keep up with the rising cost of living. Investing in mortgage notes, on the other hand, offer a potentially higher return on investment, making them a more attractive option in inflationary times.

2) Higher Yields

One of the most appealing aspects of mortgage notes is their potential for higher yields compared to CDs. While CDs typically offer fixed interest rates, mortgage notes can provide variable rates or even higher fixed rates, depending on the terms negotiated. This means more bang for your buck and a better chance to grow your investment over time.

3) Diversification

Investing solely in CDs can leave your portfolio feeling a bit one-dimensional. Mortgage notes, however, offer a way to diversify your investments and spread out your risk. By adding mortgage notes to your investment mix, you’re not only potentially increasing your returns but also safeguarding your portfolio against market fluctuations.

4) Tangible Asset Backing

Unlike some investments that might feel like betting on abstract concepts, mortgage notes are backed by real, tangible assets—properties. Even if a borrower defaults, the underlying real estate can serve as collateral, providing a layer of security that’s often absent in other investment vehicles.

5) Ease of Access

With CDs, early withdrawal penalties can be a real headache. If life throws a curveball your way and you need to access your funds before the CD matures, you could face hefty penalties. Mortgage notes, on the other hand, offer more flexibility. You can sell your note on the secondary market if the need arises, providing a more liquid investment.

The Bottom Line

While CDs have long been considered a safe haven for investors seeking stability, the current environment of rising inflation calls for a rethink of our investment strategies. Mortgage notes offer an attractive alternative for those looking to beat inflation, diversify their portfolios, and potentially earn higher yields.

Remember, investing always carries risks, and it’s essential to approach mortgage note investing with caution and diligence. But with the right knowledge, strategy, and mindset, mortgage notes could be your ticket to financial success in today’s ever-changing economic landscape.