The rate you charge is the rate you charge, it's your money and you're assuming the risk of losing part or all of it so the rate of return needs to compensate you for the risk involved to your satisfaction. Some lenders may look at a deal and say 10% while others look at the same deal differently and say 15% there is no hard fast rule other then -> The maximum legal rate in Canada is 60% anything higher is considered criminal. (As per section 347 of the Canadian Criminal Code).
Some things to consider would be how much to I stand to gain from this deal? (is it enough to make me want to move from my current strategy? what other options do I have with this money and how much could I make there? (is the risk higher or greater?)
1) Does the deal make sense regardless of the borrowers information?
Loan to Value
Loan Position
Location of Property
Zoning of Property
Planned Use of Property
Condition of Property
Marketability of Property
Current Market Conditions in the Area
Are you going to be in 1st position on the property or 2nd? (I would not generally consider anything after 2nd unless I can verify a very very low LTV and even then the question would be why not refi the 1st or 2nd? would need to have solid make sense answers to these.) If you are in 1st position you will be in a good position should default happen. If you're in 2nd position be prepared accept that the 1st mortgage holder will control the default / foreclosure process. They do not need to consider your position at all and generally will only look to minimize the loss on their side. Also keep in mind that when a property sells as a foreclosure it will not bring in anywhere near market value so if the LTV is tight you will likely loose your shirt. This assumes that there will be a loss of some sort just a matter of size. If the LTV was low enough to avoid losses the owner would have likely just sold the property to max. out the personal money they would get from the sale. You could take over the 1st if you are in 2nd position to protect your investment but also realize there are a ton of headaches that come from this as well, utilities, taxes and property expenses are usually covered by the 1st mortgage holder during the default process as a lot of the times the owner has either walked or has simply stopped paying everything.
2) Would you lend to the borrower?
Demographics of Borrower
Current Address & Homeowner Status / History
Employment Status / History
Credit Status / History
Judgements / Public Records / Inquiries
Does the demographics of the credit file match the demographics given by the individual?
Can the Borrower provide verification documents for information given?
How long has the borrower been employed in their current position? Are there any economic factors to be aware of their industry of employment? How long have they lived at their current address, are they currently a renter or a homeowner? What is their debt load like? is there a lot of recent inquiries? how is their payment history? Are their cards maxed? Are there signs of financial strain on the credit report? (multiple max'd cards with newly opened cards or inquires) Do they have any debts or obligations outside of the credit file? (support payments, family loans, mortgages etc...)
At the end of the day it's your money and your decision what you lend it out at, just keep in mind everyone is nicest when they want to borrow money from you and that can change in an instant. Everyone pays until they don't...
Verify, Verify, Verify.
Cheers,