Cost appropriation on note origin

[Roy N.]

Hello BP,

I've been approached by a would be borrower for a loan under $50K with a three year term. The borrower has offered an existing property as collateral: a performing rental appraised at ~350K. There is a first mortgage of ~50% (180K) and I'd be secured in second.

I've taken two mortgages in the past, but both were in first position. This would be the first time taking a second position.

In first position, I lent at rates between 6 and 9%. In second, I would plan to set the rate a little higher (i.e. 8 - 12%). Depending on the lender holding the first mortgage on the collateral property, registration of a second could give them the ability to call the first - though it's doubtful this would happen.

My question has to do with what fees are appropriate to assess to the borrower in this situation. My short list includes:

a) legal cost of drafting & executing agreement;

b) appraisal of collateral property;

c) fee for registration of second mortgage;

d) administrative cost of servicing;

Are these reasonable? Am I missing something ... ie. should I be requiring the borrower to furnish proof of insurance with us as named beneficiary?

In the past, I used a 20yr amortization and will likely do the same this time. I am also leaning towards P&I payments, but may offer Interest with annual pay-down requirement or interest only at a somewhat higher rate.

This is by no means a done deal. I am simply doing my homework at this point to see if the return for tying up my capital for three years and the risk is worth it and thought I might reach out to the immense talent pool here on BP.