Mortgage Fund Investment Guide
Mortgage Fund Investment Guide
Looking for an alternative investment option? Mortgage funds provide an opportunity for investors who are looking for regular income, diversification and attractive rates of return. But how exactly does investing in a mortgage fund work and is it the right option for you?
Let’s take a look!
What is a mortgage fund?
A mortgage fund is a managed investment scheme that pools its investors’ money to lend to borrowers for the purchase or development of residential or commercial properties. The borrower pays interest on the loan, which is then passed on to the investor.
How does a mortgage fund work?
In every mortgage fund there are investors and borrowers. Investors invest financial capital on agreed terms with the mortgage fund. The borrowers then take out loans funded by these investors.
Borrowers are approved by the mortgage fund which will define the lending criteria, target asset class and loan to value ratio (LVR) based on their risk appetite to issue investment products. These loans are secured by mortgages over property as the primary security.
The fund manager’s aim is to provide investors with target fixed income returns through investing in professionally selected and managed loans. These loans are made predominantly to borrowers for the purpose of funding the acquisition and development of commercial and residential properties.
Benefits of a mortgage fund
Regular income with fixed or target return
Fixed term investments (short-medium term)
Attractive rates of return
Investment secured by mortgages over property
The ability to decide your investment amount and terms
Low minimum investment
What are the risks?
Investment risk
Most mortgage funds will advertise a target return percentage. But there is no guaranteed return. In general, the higher the rate of return, the higher the risk of the investment.
Default and credit risk
Borrowers may not be able to pay principal and interest payments due under the loan.
Liquidity risk
Your invested capital must remain in the trust until the relevant loan is repaid.
To reduce the associated risk it is important to invest with expert fund managers who have industry experience and a good track record as they will have a disciplined risk management system in place.
Fund structure
There are typically two main ways to invest in a mortgage fund, pooled funds or contributory funds.
Pooled funds
Pooled mortgage funds pool investors’ capital into a larger fund and spread it across a range of multiple mortgage investments.
In pooled funds, as an investor, your fund manager will choose where these funds are invested. You simply invest your money with the mortgage fund and all the investors share the lending risk across a range of mortgages. Investors receive the average interest from all the loans as a fixed return for a fixed period, less the management fees.
Contributory funds
A contributory mortgage fund is also known as a direct mortgage fund or select mortgage fund. The mortgage fund is structured so that investments are made as an individual loan. Investors can choose which mortgages to invest in based on risk profiles and returns with which they feel comfortable.
How do I get started?
It’s important to compare mortgage funds to make sure you are making the best investment decision. Investors should take into account the form of investment, the size of the loan and the loan to value ratio (LVR). It’s also important to understand the experience and value that your chosen fund manager can bring to your investment.
At Mountain Asset Management we offer a variety of mortgage fund options. When you invest with us you join a community of like minded investors supported by our expert team. We take a collaborative, meticulous approach to build sustainable long-term returns for investors.
We invite you to speak to one of our team to get more information, discover your investing options, and decide which investment strategy is right for you.
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Explore our investments options available with Mountain Asset Management, and online OPEN INVESTMENT ACCOUNT . Or contact our team on 03 8370 3174 or via email investor@mountainam.com.au