Five things you need to know about mortgage trusts

Seeking an income-focused investment solution? A mortgage trust could be an option.

Mortgage trusts aim to provide investors with a competitive income and depending on the type of trust, portfolio diversity.

New to the idea of a mortgage trust and wondering if it might suit your investment portfolio? Let’s take a closer look at the risks and benefits of this style of investment.

Mortgage Trusts | Trilogy Funds Australia

1. A way to invest in the property sector – without buying a property

Mortgage trusts (also known as mortgage funds) are a way to invest in the Australian property sector without directly purchasing a house, unit or land.

Much as the big banks issue loans to home buyers, mortgage trusts provide a specialist lending service to borrowers such as property developers, who need short or medium-term funding for their projects.

They are designed to generate income for investors, derived from sources such as interest, fees and income from other investment holdings held by the trust.

Distributions (net of fees) may be paid monthly, quarterly, or annually depending on the trust, and some trusts offer two options for payment of distributions – cash payments or reinvestment of the distributions.

2. A competitive income

The aim of mortgage trusts is to deliver a competitive income through a payment called a distribution.

Whether you’re a young investor just starting to build up your investment portfolio, or a self-funded retiree, looking for a way to generate returns from your portfolio, then a mortgage trust could be right for you.

They offer a competitive income option at a time now during a low-interest rate environment.

Well-managed mortgage trusts pride themselves on generating competitive returns for their investors over long periods.

(Note: If you’re aiming to save rather than spend, some mortgage trusts also provide the option to reinvest your distributions, thus accumulating more units over time.)

3. Lower entry-level than purchasing a property directly

When you invest in a mortgage trust, you can commit the minimum investment amount, which can be as little as $10,000, and are allocated a number of units in the trust based on how much you invest.

It is important to understand the redemption terms and conditions outlined within the mortgage fund’s offer document and consider, with a licensed financial adviser, your budget and need for access to your money before making an investment decision.

4. Focus on risk

As with any type of investment, there is a degree of risk when investing in mortgage trusts. Well-managed trusts implement policies to manage risks, such as:

  • Diversity – by not investing exclusively in one type of property sector (e.g. commercial), or in one city or region, trusts can spread their risk across different markets and property types much more effectively than a small investor buying a single property.
  • Liquidity – retaining some cash and liquid investments ensures that conservatively managed trusts can meet their cash flow needs and honour investor requests for redemptions. To help manage liquidity, the Trilogy Monthly Income Trust requires a minimum investment period of two months, and then a four-month withdrawal notice period.
  • Loan security – mortgage trusts generally require that all their loans are secured by registered mortgages. This gives them the right to take possession of a property and sell it should a borrower stop making loan repayments or otherwise fail to honour the terms of a loan agreement.
  • Loan-to-valuation ratios – requiring that a property offered as security for a loan is worth substantially more than the loan amount is a key way for mortgage trusts to mitigate their risk. This is measured by the loan-to-valuation ratio, or LVR: the lower the LVR, the less risk. To learn more about LVRs and how they protect investors, see this example. Investors should note that there is a risk of capital loss, and investments in mortgage trusts are not capital guaranteed.

5. Experienced investment managers

Before investing in a mortgage trust, it pays to do your homework and to seek out independent advice from a licensed adviser.

This will help you to answer questions such as: does the fund manage its risks well by spreading the money it lends across different loans, borrowers and investments; does it have enough cash on hand to issue new loans and to repay investors; what assets are held, and what is their value?

As with all investments, there are risks as well as rewards associated with investing in property. A licensed financial adviser can help you better understand the pros and cons of different investment types. We always recommend investors obtain, read and understand the relevant offer document and seek advice from a licensed financial adviser before investing.


This article has been prepared by Trilogy Funds Management Limited (Trilogy) ABN 59 080 383 679 AFSL 261425. This advice is general advice only and does not consider your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and obtain and read the relevant product disclosure statement before making any investment decision.