Demystifying mortgage funds

It’s reasonable to say that no two mortgage funds are alike, even if they may seem similar at first glance.

Most mortgage funds are a subset of the private (non-bank) credit market, which is an ever-increasing segment of the credit (lending) markets. 

The Reserve Bank of Australia (RBA) estimates that the global private credit market is worth $2.8 trillion and that 15% of all loans for SMEs (small and medium size enterprises) and middle-market businesses are provided by non-banks (Australian Investment Council, 2021). 

With the shift away from the big four banks, non-bank lending is expected to continue to grow as lenders capitalise on their ability to be more responsive and flexible and provide personalised service to borrowers and investors. 

In Australia, mortgage fund investments primarily fall into two categories: Pooled and Select Mortgage Funds. The Australian Securities and Investments Commission (ASIC) is the legislated regulator that governs the activities of the managers of these funds such as RMBL. 

Mortgage funds are investment vehicles where investors’ capital is used to finance property loans. These loans are typically secured by mortgages over the properties, providing a level of security for investors. Investors receive interest from borrowers as a return on their investment and as the borrower repays the loan, capital is returned to investors. 

There are two categories of mortgage funds: 

Select Mortgage Funds: Investors choose specific loans they wish to invest in, offering control over the risk and return profile of their investment. 

Pooled Mortgage Funds: Investors invest in a diversified pool (portfolio) of loans, reducing investment risk through diversification but do not have the ability to choose specific loans they want their funds allocated to. 

RMBL offers investors the ability to invest in a Select Mortgage Fund. Furthermore, RMBL’s Select Mortgage Fund only funds loans under first mortgage terms with conservative loan to valuation ratios (LVRs). 

It distinguishes itself through a commitment to transparency, rigorous due diligence and credit assessment, and a focus on providing investors an attractive risk-adjusted return.  

It is important to recognise that other mortgage funds, whether they be Select or Pooled Mortgage Funds, often provide loans to borrowers on higher LVRs and may include second mortgages or mezzanine terms. 

This means that investors are exposed to much higher risk parameters. RMBL does not offer second mortgages or mezzanine terms to borrowers. 

RMBL provides loan facilities for business or investment purposes. RMBL predominantly lends to borrowers who are well known to them for the purpose of land subdivision, construction, or land banking while rezoning occurs or permits are obtained. 

RMBL conducts its own due diligence for all loans, which includes obtaining an independent sworn valuation of the security property. For development loans, RMBL will also obtain Quantity Surveyor (QS) or Engineers’ Reports. Site visits are conducted regularly to ensure that projects are progressing as per the reports RMBL receives from external providers. 

Investment in RMBL has consistently provided strong, risk-adjusted returns to investors. There are no fees or charges to investors. Interest can be reinvested in a loan or is paid monthly, which is especially beneficial for investors who are seeking a regular return on their investment.