Tips for considering when investing in Mortgages | Funding

TIPS FOR CONSIDERING WHEN INVESTING IN MORTGAGES

Mortgage investments are increasingly popular within the investment market. If you’re considering this as an investment option, it is essential that you familiarise yourself with all the aspects involved in mortgage investments. 

We have listed down top tips for consideration when investing in mortgages:

  • Assess the loan ranking. First registered mortgages are far superior to mezzanine/second registered loans in terms in terms of risk control. Mezzanine loan investments should only be considered by those who understand the investment risk.
  • Ask what additional guarantees the borrower has provided such as corporate guarantee or general security agreement. Also ask about the borrower – Are they a property developer? What are the objectives of the borrower?
  • Consider the Loan to Value Ratio (LVR). The higher the number, the riskier the loan. Under a 50 per cent LVR, in simple terms the property would need to drop by 50 per cent in value if a default occurred and the property was liquidated before a capital loss occurred. But if the LVR was 80 per cent, a drop of more than 20 per cent in value would potentially trigger a capital loss.
  • Make sure you understand what type of property is being provided as security for the loan ie a residential property or a commercial property.
  • Make sure you are comfortable with the resale value and liquidity of the property the loan is secured against. A freestanding house in metropolitan Sydney is more likely to be liquidated quickly compared to farmland in remote Northern Territory. The loan term is also important as they can vary from 3 months to 3 years.
  • Ask about the company arranging the loan. Do they have skin in the game? How long have they been operating? How many loan defaults have they had? What external audit and compliance measures do they have in place?
  • Is the loan investment offered via a retail managed fund, which has a higher level of consumer protection, or is it offered on a wholesale basis, under which an investor assumes more risk (that is, less consumer protection) given they are deemed to be sophisticated enough to assess the investment.
  • What is the net interest margin? That is, what is the interest rate the borrower pays versus the interest rate the investor gets. This margin, which is paid to the loan manager, is typically 1.5-2 per cent. If the borrower pays interest of 9 per cent, the loan investor should expect to be offered roughly 7-7.5 per cent interest.

Learn more information about our First Mortgage Investments or open an account on our platform. 

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on email
Email

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.