What is a Mortgage Trust? | Trilogy Funds Australia

What is a Mortgage Trust?

When entering the world of investing, it’s important to be aware of all your options so you can seek a return and investment structure fit for your risk appetite and circumstances. With that in mind, how much do you know about mortgage trusts? Have you considered investing in one yourself?

A mortgage trust is a type of investment operated by a professional fund manager, like Trilogy.

A mortgage trust pools investor’s money for lending to borrowers as mortgages over property. This may be property that already exists, or money may be lent to a borrower undertaking property development. In return for investing money, investors receive a regular income called a “distribution” from the interest paid by borrowers, cash and other investments held by the trust. Distributions may be paid half yearly, quarterly or monthly depending on the trust.

Pooled and contributory mortgage funds

When investing in a mortgage trust, there are two main types of trusts for you to consider, pooled or contributory trusts.

Pooled Contributory
Your investment is diversified across a range of mortgagesYou (or the fund manager) decide which mortgage loan you invest in.
All investors share in the income generated from the pool of mortgages.The mortgage you invest in might generate a different return from other mortgages within the fund.
Investors share the risk associated with each of the mortgages in the pool.You’re exposed to the risk of only that mortgage.
You can withdraw some or all of your capital subject to Trust liquidity (a notice period is usually required).You can only withdraw your capital when the loan matures (i.e. is repaid).

 

Mortgage trusts can be wholesale or retail investment vehicles. Wholesale mortgage trusts are issued under and information memorandum and are generally only available to investors who mee the wholesale investors test. Retail mortgage trusts are trusts with a Product Disclosure Statement (PDS) regulated by the Corporations Act 2001, with the Australian Securities and Investment Commission (ASIC) as the regulator.

Potential benefits of investing in a mortgage trust

In return for investing in the trust, investors receive regular income distributions for as long as they remain an investor. Mortgage trusts also offer exposure to an asset classes and returns that would not ordinarily be available to retail investors.

ASIC has developed benchmarks and disclosure principles 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.

Like most investments, there is risk associated with the potential reward and it is critical to ensure the investment risk profile suits your personal circumstances. A licensed financial adviser can help you make this judgement if you are unfamiliar with this investment type.

If you would like to learn more about Trilogy’s mortgage trusts, check out our current opportunities open for investment.

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.