Let’s say that you want to make an investment and the bank’s looking at you and thinking, oh man, we think Kris that you’re a little bit of a risky bet for us, can you put some collateral up? What’s collateral? If default on the loan then it’s money I’m going to have to owe them. For example let’s say that my car’s paid off and I’m like, great, we’ve got your vehicle as collateral and then my wife owns the Hope Diamond worth two million dollars right so we’ve got that as collateral. What collateral really means is that if an investment goes south then anything you put in as collateral, the bank can take from you so it can be a little scary, you got to make sure you’ve really confident in what you’re doing. Well a collateral mortgage is basically when you put up a home that still has a mortgage on it but it still clearly has equity and you’re basically putting it up to the bank is like a promissory note.
I’m basically saying, hey, I’m doing this other deal but if anything goes south, then guess what, then you get this home with this mortgage as collateral so by the way, I’m a huge fan of collateral because sometimes investments will say, hey, put up some extra money as security and instead you can say, hey, how would I give you a promise or you know saying, I promise, I’m going to pay it. They’re like, well what’s that worth? Well take a look at some of my collateral. I’ve got this asset, I got this asset, I got this asset and all the sudden someone says wow, if you’re really to put that on the line then you must be confident understanding that lending money is always just a game of confidence. We’re using ones and digits and numbers and credit scores and checking a look at your reports as ultimately determine one word, confidence. Can you have confidence in you? And when you put up collateral here’s what it tells people.. You must be confident because if things go south, what do they get? They ensure that they have a way of getting their money back.
Sometimes when an investment goes bust, people lose money so then they get the collateral and then they what? They make up. One more thing on this.. Often certain investments are looking for a 2x on collateral. What does that mean? That means that I picked up a hundred thousand dollar note with, you gave me a hundred grand and I’m not responsible to make payments and eventually give you a hundred grand back but for you to feel comfortable giving me the money, I gave you $200,000 worth of collateral. Let’s just say that it’s a mountain property worth $200,000 in paid off, well the bank basically says hey, we can always liquidate the mountain property at half off and get all of our money back. so it’s a security, it securitizes, it produces security for them, it helps them feel comfortable and ultimately collateral goes hand-in-hand with confidence and security and security means I feel more secure knowing that I’ve got more of your assets so if things go bad, then I can liquidate these and I can still get my money. Collateral mortgage just means that it’s collateral tied to a specific piece of property.