The Pros and Cons of Pooled Mortgage Funds in Australia

Is investing in a pooled mortgage fund for you?

Pooled mortgage funds are gaining popularity in Australia as an attractive alternative to traditional investments such as stocks, bonds, and direct real estate ownership. These funds allow investors to pool their capital together, which is then lent out to borrowers secured by property.

As with any investment, there are both advantages and risks to consider. Below, we outline the key pros and cons of investing in pooled mortgage funds in Australia so you can assess whether they align with your goals.

Pros of Pooled Mortgage Funds in Australia

1) Diversification Across Multiple Loans

One of the biggest benefits of pooled mortgage funds is diversification. By combining your investment with other investors, your capital is spread across a portfolio of secured loans. This reduces risk because if one borrower defaults, the other loans can continue generating income while recovery is pursued.

2) Attractive, Consistent Returns 

Mortgage funds in Australia typically deliver higher yields than government bonds or term deposits. This is because they are generally invested in private credit loans with higher interest rates. Some pooled funds also include second mortgages, which can further enhance potential returns.

3) Regular Passive Income Distributions

Most pooled mortgage funds pay investors on a monthly or quarterly basis. This predictable income stream is especially appealing to retirees or those seeking passive income to supplement their salary or business earnings.

4) Professionally Managed Investments

When you invest in a pooled mortgage fund, your money is managed by professional fund managers who specialise in assessing borrowers and managing risk. This means less hands-on involvement for you, while still benefiting from the expertise of seasoned professionals.

5) Accessible Entry Point

Unlike buying property directly, investing in mortgage funds in Australia does not require large amounts of capital. Minimum investments often start from as little as $10,000 and can be made by individuals, companies, SMSFs, or trusts. Pooled Mortgage Funds are also open to both Retail and Wholesale Investors.

Cons of Pooled Mortgage Funds: Risks to Consider

1) Liquidity Risks 

Pooled mortgage funds are not as liquid as shares or bonds. Exiting your investment generally requires notice periods and redemptions may only be processed quarterly. This makes them less suitable for those who may need fast access to cash.

2) Borrower Default Risk

Defaults can impact fund performance, especially if the value of the security property declines. While legal processes are in place to recover funds, they can take time. However, not all defaults result in losses—some investors may even benefit depending on how interest and fees are structured.

For more information as to why this can happen, we covered this topic in greater detail in the article “How A Borrower Going Into Default Can Actually Be Beneficial to Investors”.

3) No Direct Control Over Loan Selection

Investors do not choose which loans their money is allocated to. Instead, the fund manager makes all investment decisions. While this is convenient for passive investors, those wanting more control may see it as a disadvantage.

What Makes Active Property Group’s Pooled Mortgage Fund Different

When comparing pooled mortgage funds in Australia, it’s important to understand what sets each one apart. At Active Property Group (APG), our pooled mortgage fund offers several unique features:

1) Transparent Fee Structure

Our advertised returns are net of fees for Wholesale Investors. Retail Investors pay only a 0.5% fee, which goes directly to the independent trustee (Primary Securities Ltd) overseeing the fund. There are no hidden application, custodial, or performance fees.

2) Flexible Withdrawals With No Minimum Term

Unlike many other mortgage funds in Australia that lock investors in for 1–5 years, APG allows redemptions on a quarterly basis with no fixed term commitment. Requests must be lodged three weeks before quarter-end, and while redemptions are not guaranteed, APG has consistently paid them on time.

For more information on redemption requests, check out our FAQ Article: How do I withdraw my investment?

3) Balanced Loan Portfolio

We maintain a strategic allocation of approximately 70% first mortgages (for conservative risk management) and 25% second mortgages (to enhance yield). Around 5% of funds are also held in cash for liquidity.

4) Conservative loan-to-value ratios (LVR)

All loans are secured by Australian property with a maximum LVR of 70%. This provides a safety buffer even during property market downturns. need to liquidate the security property.

5) Flexible Income Options

Investors can either receive quarterly cash distributions or choose to reinvest through our Distribution Reinvestment Plan (DRP) to compound returns over time.

Having this option is a great way for investors to personalise their investment depending on what they need. Those looking for a regular source of extra income can do so with the regular plan while those who want to grow their investment at a faster rate over time through compounding interest may also do so. 

Learn More About Mortgage Fund Investments

If you’re considering investing in a pooled mortgage fund, it’s essential to weigh the pros and cons carefully and compare providers. Active Property Group’s pooled mortgage fund is designed for investors seeking passive income, diversification, and professional management with flexible withdrawal options.

Learn more about our investment opportunities here: Active Property Group Investments.

To get in touch with APG, you may book a call to speak to our Investor Relations team and they will gladly answer any question you may have. You may also reach us via our Contact Page.

This information is of a general nature and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

If you have any questions about investing in private mortgages then please send us a message via our Contact Page.