A mortgage is a security measure designed to protect a lender from financial loss. It 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.
This right remains in place until the loan is paid off in full, together with any outstanding interest.
Not all mortgages are for home loans. For example, a mortgage may be registered over a home as security for a business loan, or to guarantee a loan for someone other than the homeowner.
It is also common for property developers to raise mortgages on development properties to secure the loans they need to finance construction projects.
Security of a first mortgage loan
A mortgage thus puts the lender (also known at the mortgagee) in a more secure position, and minimises the risk of them losing money in the event a loan is not repaid by the borrower (or mortgagor).
Adding to this security, it is possible to register more than one mortgage over the same property but in this situation, the rights of the first mortgage-holder always take precedence.
This means, lenders holding a loan secured by a second (or third) mortgage are taking on a much higher level of risk. In the event of default by the borrower, the holder of the first mortgage will receive any proceeds from the sale of the property until their debt is paid off in full.
The Trilogy Monthly Income Trust
The Trilogy Monthly Income Trust uses funds raised by our investors to issue loans to residential, commercial, industrial, and retail property sectors across the Eastern seaboard of Australia.
Apart from only operating on first mortgages basis, the Trust’s funds are also well managed in other ways. First and foremost are our lending processes. Every loan application is assessed before being approved or declined by Trilogy’s lending committee.
A maximum loan ceiling of $20 million ensures that risk is well diversified across many different loans and we maintain personal relationships with all of our borrowers with each project closely monitored by our portfolio managers.
Investment research house SQM Research describes the Trust’s lending process as “stringent, compliance-driven and strictly adhered to from end to end”, and “managed by experienced and qualified personnel, conducting extensive checks and balances to manage risk properly’’.
In the unfortunate event that one of the Trust’s borrowers does fall into arrears, our first response is to work closely with them to address any problems they may be experiencing.
However, if a borrower should default on their loan, then the Trust’s first mortgages provide security enabling us to manage the property and if necessary, sell it, using the proceeds to settle the loan made by the Trust, along with any outstanding interest and costs incurred.
In this event, an added layer of investor security is provided by the Trust’s loan-to-valuation ratio. All properties are independently valued before a loan is approved, and all loans are restricted to 60-70 per cent of the valuation amount (as if complete).
In good times, an investors’ main focus is the hunt for yield. But when crisis strikes, as during the current coronavirus pandemic, their thoughts turn quickly to capital security. While all investments carry risk, investors in the Trilogy Monthly Income Trust can take comfort knowing their investment is professionally managed and backed by the tangible security of first mortgages over Australian property.
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.