30th January 2008

Dear Investor,

What are Mortgage Trusts?

Mortgage trusts allow investors to pool money in a trust to lend to individuals and companies. They secure their borrowing by a mortgage over residential or commercial properties. The trust collects the interest paid on these loans and then distributes the interest, less charges, as income to investors.

Most mortgage trusts will also invest a percentage of money in cash and fixed interest investments to maintain a cash reserve or if mortgage investments are not available. Some trusts guarantee a minimum return for a certain period. Others may provide a capital guarantee for the investment. These guarantees are only as good as the company providing them. They are not government guaranteed. Mortgage trusts are available from life insurance companies, independent fund managers and bank owned investment groups. Mortgage trusts should not be confused with property trusts. Mortgage trusts are secured by a mortgage over a property. Property trusts buy or develop property on behalf of unit holders.


  • Generally no entry fees.
  • A minimum investment is required but may be as low as $1000.
  • Additional deposits may be made.
  • Interest (income) may be reinvested, paid into an account or paid by cheque.
  • Interest may be paid half yearly, quarterly or monthly depending on the trust.
  • Earnings are usually higher than from many fixed interest investments over the medium term.
  • Regular statements are sent to investors.

But Remember . . .

  • No capital growth.
  • Income varies as interest rates change.
  • Withdrawal time varies between trusts and may range from a few days to six months or the term of the loan.
  • Exit fees often apply.


Generally entry fees are not charged. Exit fees may be payable on withdrawal but are usually not charged after 3 years. Management fees are normally deducted before the return (income) is declared. In times of low returns management fees may considerably reduce income.


Interest is fully assessed for income tax in the tax year it is earned. There are generally no tax concessions or benefits and Pay As You Go (PAYG) tax may apply depending on the investor's circumstances.

Social Security and Veterans' Affairs

The total value of the investment is assessed under the assets test. Mortgage trusts are assessed for the income test under the deeming rules. For further details contact a Centrelink or Veterans' Affairs Financial Information Service Officer.

Security and Risk of Mortgage Trusts

Like all investments, Mortgage Trusts involve some risks. Even though mortgage trusts generally invest in first mortgages, they may also invest in second or subsequent mortgages which expose the trust to additional risks. The policy of the trust should be understood and the risks accepted before investing.

The Risks

The outstanding amount owed on a loan to the trust may exceed the value of the mortgaged property. If a borrower defaults on repayment of their loan and the property is sold, the trust may suffer a loss.

  • First mortgages give only a conditional right to the property securing the loan.
  • Mortgages are not easily sold to other institutions. If the trust receives many withdrawal requests and holds insufficient cash in reserves it may be difficult to raise the required cash. This may result in losses or long delays in payment.
  • The quality and features of the mortgaged properties should be considered, eg. location, stage of development, quality of tenants, security of rental income and the type of property (supermarkets, residential, offices etc).
  • The lending policy should also be considered. This is the amount a trust will lend against the property compared to the value of that property. A high lending level (eg. greater than 60%) may indicate higher risk.
  • The spread of loans is important. If the trust has lent a large amount to one borrower and they cannot repay, the trust may suffer a significant loss.

Investing With Safety

  • Mortgage trusts are not risk free investments. When selecting a mortgage trust be aware that a higher return compared with current market rates might also indicate a lending policy involving a greater risk.
  • Mortgage trusts should not be regarded as short term investments. Money required for ready access should not be placed in these trusts.
  • Applications to invest must be made on the form attached to the current Product Disclosure Statement (PDS).
  • Although the statutory information and other details in the PDS are lengthy and complicated, they should be fully understood before investing in this type of product.

Source: National Information Centre on Retirement Investments Inc.

Best regards,
Chris Andrews


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Chris Andrews
Head of Funds Management

t  +61 3 8610 2811
e  candrews@latrobefinancial.com.au

Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.

La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

Copyright 2010 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial. Disclaimer

* La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Mortgage Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. You can get a copy of the PDS by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you.
(1) The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund, and may achieve lower than expected returns. Past performance is no guarantee of future performance. Investors risk losing some or all of their principal investment.
(2) Withdrawal rights are subject to liquidity and may be delayed or suspended.
(3) As at 30/11/10 the La Trobe Australian Mortgage Fund had received a Morningstar RatingTM of 5 stars. The Morningstar Rating is an assessment of a fund's past performance - based on both return and risk - which shows how similar investments compare with their competitors. A high rating alone is insufficient basis for an investment decision. © 2010 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the above data or content to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice has been prepared by Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892 (a subsidiary of Morningstar, Inc.), without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant product disclosure statement, before making any decision. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/fsg.pdf
(4) 3.75 star rating out of a possible 5 star rating indicates that Adviser Edge believes that La Trobe has performed in line with its peers and exceeded its peers on some fronts.
(5) The Standard and Poors rating of 4 out of 5 stars indicates that S + P has high conviction that La Trobe Financial will consistently generate risk-adjusted fund returns in excess of its relevant investment objectives and relative to its peers.
(6) The award was given to the La Trobe Australian Mortgage Fund, Pooled Mortgages Option.
Research Ratings are subject to change. To view the latest research information please visit www.adviseredge.com.au or www.standardandpoors.com.au. Ratings issued by Adviser Edge Investment Research AFS Licence No. 236783 and Standard & Poors Information Services (Australia) Pty Ltd AFS Licence No. 258896 are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. The ratings are only one factor to be taken into account in deciding to invest. Research Houses receive a fee from La Trobe for rating the product. The Adviser Edge rating is generally a measure of the rated entity's capacity to meet its repayment obligations in all market circumstances.
IMPORTANT: This message, together with the La Trobe Financial website (www.latrobefinancial.com.au) and all its contents have been prepared for general information only and should not be taken as legal or financial advice, and as such the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before acting on any information present on this message or the La Trobe website.