Mortgage Trusts

For potential investors looking to benefit from a monthly income, yield or portfolio diversification opportunities, a mortgage trust can be an effective way to meet their financial objectives.

Mortgage trusts can also be called “mortgage funds” or “mortgage schemes”.  It is a type of investment you can buy “units” in and is operated by a professional fund manager like Trilogy Funds. A mortgage trust is a form of investment that pools money for lending to borrowers on mortgages. In return for investing money, the investors in the trust receive a regular income called a “distribution” from the interest paid by borrowers and bank accounts. There are generally two types of mortgage trusts:

Pooled

  • All investors share in income generated from the mortgages
  • All investors share the income
  • All investors share the risk associated with all the mortgages in the pool
  • You can withdraw some or all of your capital at any time subject to liquidity (a notice period is usually required)

Contributory

  • You (or the fund manager) decide which particular mortgage loan you invest in
  • The mortgage you are invested in might generate a different return from other mortgages within the fund
  • You are exposed to the risk of that mortgage
  • You can only withdraw your capital when that loan matures

Mortgage trusts can also be unlisted or listed. Unlisted trusts are not on a public market like the Australian Securities Exchange (ASX). Unlisted trusts are not subject to supervision from a market supervisor like a listed trust, however retail mortgage trusts, being trusts with a Product Disclosure Statement (PDS) are still regulated by the Australian Securities and Investment Commission (ASIC).

ASIC has developed benchmarks and disclosure priniciples to assist investors to evaluate the risks associated with an investment in a retail mortgage trust. The fund manager must address the benchmarks and disclose against the principles in the PDS and update them regularly for publication on their website.

Note: Different investments have differing levels of risk. Generally, the higher the return, the higher the risk. For example, mortgage and property trusts generally have a higher return than bank deposits, but do not have the benefit of a government guarantee.

This webpage includes some information from the Investing in mortgage funds? Independent guide for investors about unlisted mortgage funds. An ASIC publication dated October 2010.