Investors and Borrowers have used private mortgages as an investment and for funding in Western Australia for over 100 years. A private mortgage is a contract between a Borrower and a Lender (Investor) for a real estate secured loan of money for a fixed term and fixed interest rate, with interest only payments.
The key feature of a traditional private mortgage is the Investor’s name being registered on the Certificate of Title as the Mortgagee (Lender). In order to match the amount of money the Borrower wishes to borrow with that available from Investors, Australian Financial Services Licence holders puts together Investors in a contributory private mortgage.
The Investors hold their respective shares, as registered Mortgagees, in proportion to their monetary contributions to the Mortgage. The Australian Financial Services Licence holder who arranged the advance also manages the contributory private mortgage, for a fee.
Private mortgages are used by Investors as a form of fixed interest product to achieve a higher interest rate return, albeit with a higher risk of interest and principal repayment. Private mortgages are not a bank deposit and therefore are not afforded any of the protection to Investors available for bank depositors.
Borrowers use the private mortgage market to access funds for business working capital, property purchase or refinance needs.
With the standardisation of credit approval processes by institutional lenders, even creditworthy Borrowers can have difficulty obtaining finance as they are unable to meet exactly the stringent criteria, especially in relation to small business financing.
All Borrower applications for a private mortgage are assessed locally on an individual basis by PMFM.