Casting mortgages in a new light

Roy Prasad

Roy Prasad

Contributory mortgage funds have addressed the problems which have affected the pooled mortgage funds of the past, and offer excellent income opportunities for investors, said Roy Prasad, head of mortgages at Australian Unity.

A contributory mortgage is when one or more people contribute, as lenders, to the loan. Rather than having all investors registered on the certificate of title to the property, the mortgage is usually registered in the name of a trustee on behalf of all investors to that loan. Each investor has an exposure to the loan in the proportion that each contributed capital. Investors are entitled to interest income and a return of capital from a specific syndicate-fund, not from a diversified pool of mortgages.

“Investment in a first mortgage loan is generally a capital-stable investment, offering monthly interest payments that are typically higher than those payable by retail bank deposits,” Mr Prasad said.

“Contributory mortgage funds are an improvement on the pooled fund structure, as they allow investors to tailor risk and return, location, and the duration of returns to their own preferences. In some ways they are an expanded form of the peer-to-peer lending which has grown so strongly in recent years.

“Investors can construct their own asset exposure—from a single concentrated investment to a diverse portfolio of registered first mortgage investments.”

Investors in a contributory mortgage fund have the option to put money into discrete syndicate funds of their own choosing, giving them greater transparency and control over their investment.

Mr Prasad said there are a number of other benefits to a contributory mortgage fund, including income stability, capital stability, credit quality and a defined term investment.

“Monthly interest income provides investors with a high degree of cash flow certainty. In the case of the Australian Unity Select Mortgage Income Fund, we currently offer interest rates between 6.50 and 9.50 per cent per annum, depending on the date, type and term of the loan and security provided.”

Each individual investment (or syndicate fund) is secured by a registered first mortgage over real property assets, generally geared to a maximum of 70 per cent, and each investment opportunity for the mortgage fund must receive credit approval from the fund manager before being offered to investors.

“Investors can also choose the term of the investment, and know their money will be returned at the end of that term. In the case of the Australian Unity Select Mortgage Income Fund, the term is a minimum of 12 months to a maximum of two years.

“A contributory mortgage fund can provide investors with the best of both worlds—the ability to select an individual investment that suits their own risk and return requirements, and professional mortgage management from an experienced team,” Mr Prasad said.

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