Investing In Mortgages - is it right for you and your money? | Funding

INVESTING IN MORTGAGES - IS IT RIGHT FOR YOU AND YOUR MONEY?

Are you considering investing in mortgages? Find out if this is the right option for you?

With interest on savings accounts at a mere 0.5 to 3 per cent, increased share market uncertainly and volatility and term deposits now cut further still. As a result, it is inevitable that everyday consumers and more sophisticated investors are looking for alternatives to help make their money work harder for them.

Traditionally, one of the most common alternatives is what are called “mortgage funds”, where the investor directly funds property mortgages and gets rewarded for the risk. There has been a sharp increase in advertising for high-yield, mortgage backed investments in recent years, but how do you look at it and decide if it’s right for you?

What is a mortgage investment?

Mortgage investments are offered by firms that provide loans to property owners and fund these loans by monies provided from investors. The investors are paid a regular amount of interest, usually monthly or quarterly. There are typically two ways investors can participate. Either by pooled or stand-alone managed fund trust structures. When you invest in a pooled mortgage fund, your money is exposed to a portfolio of loans and you receive a fixed coupon interest from all the loan fees less management fees. Under the stand-alone structure, your investment is made into an individual loan. Stand-alone structure typically suits more affluent investors as you’re usually required to fund the whole mortgage yourself. There is now also another way you can invest in stand-alone structures and that is by fractionalised co-investing into a stand-alone mortgage.

Benefits and drawbacks

There are benefits and drawbacks to both the pooled and stand-alone approach, but it really comes down to diversification versus control. In a stand-alone mortgage fund, you will make decisions about the individual loan you wish to invest in, while with a pooled fund (which can be made up of hundreds of loans) you rely on the fund manager to make those decision on your behalf. Therefore, stand-alone first mortgage offers may have higher rates of more than 7 per cent, in contrast pooled funds may be a little lower in the order of 6 per cent or higher.

Fractionalised co-investing in stand-alone mortgages offers the best of the benefits from both pool mortgages funds and traditional stand-alone mortgage funds. You have the control to make decisions about individual loans, you have increased diversification by being able to spread your funds across as many loans as you would like, you still get access to rates of 7 per cent or higher and much lower minimum investments from $5,000.

Risks

Given the onus on the investor to make decisions in the stand-alone structure, how should an investor weigh up the risks? The two main risk areas revolve around manager risk and loan quality. In other words, you need to weigh up the stability and reputation of the organiser of the loan investment, as well as assess the risk of the loan itself.

Get more information on our Mortgage Investments or open an account today!

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Online Platform.

Access our investments through our online platform.

  • Invest from $5,000.
  • Fund loans with other investors.
  • Monthly interest payments.
  • First mortgage security.

Whole Investments.

Wholesale and sophisticated investors can fund whole loans via our investor team.

  • $250,000 minimum – subject to loans available.
  • Monthly interest payments.
  • First mortgage security.