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ยป Fixed interest investments
Date published: 19/06/2011
Fixed interest investments
Fluctuations in the stock market, sovereign debt issues in the Euro sector, and questions about whether China can sustain its growth rate are just a few of the issues the feed into the volatility of financial markets that impact on investors expected returns.
Many retirees who rely on a regular monthly return from their investments have found not only the capital value of their investments have been eroded over the past couple of years, but the high returns they may have enjoyed are no longer achievable – not only do they have less to invest, the return on their remaining nest egg has diminished.
Fixed interest investments have long been considered “old hat”, and passed over for the more exciting quick returns promised by the stock market or speculative property backed investments. Fixed interest investments are often seen as being synonymous with bank term deposits and relatively low rates of return. But there are alternatives!
Mortgage funds are an often overlooked investment product with good rates of return – up to 9.5% pa or more paid monthly. In the more security conscious funds, mortgages are secured by non-specialised residential, and to a lesser extent, commercial properties, located in the metropolitan area or major regional centres. Generally, mortgages do not exceed 65% of the property market value – however investors need to be aware the nature of the properties mortgaged and the loan to value ratio can vary from fund to fund.
Investors requiring greater control over their investment should consider contributory mortgage funds. Unlike a pooled mortgage fund where your investment is secured by all the assets of the fund, a contributory mortgage is one where you invest in a specific mortgage over a specific property. Contributory mortgages provide investors with the comfort of knowing exactly what property backs their investment and in the end it is the individual investor’s decision whether or not to invest in that mortgage.
A counter argument might be that a pooled fund reduces risk by diversification, however many investors achieve the same result in a contributory fund by investing in a number of mortgages – not just one.
The term of contributory mortgage fund loans is usually 12 months during which time the investors receive a fixed rate of interest. While receipt of interest is dependent on the borrower maintaining their loan repayments, some funds continue to make payments to their investors on loans that are in arrears and recover those monies from the borrower in due course.
For more information, or to discuss your specific situation, please contact me directly.
Robert Norman
Austfin Group
Article contributed by Robert Norman, Director, Austfin Group. Austfin manage a contributory mortgage fund and have been offering fixed interest investments since 1997.
Now that you have read this, what do you think? Do you have other ideas? Please share you views with other members (eg by blog or discussion form) and/or request professional member(s) to contact you directly.
