Private mortgage investment returns: where 12% to 18% p.a. comes from

Co-funding short term secured loans with HomeSec offers returns of 12% to 18% p.a. on the loans you choose. The rate is set loan by loan and shown in each loan’s pack. The yield comes from short terms of 1 to 12 months and the premium established businesses pay for speed and flexibility, not from lending to weak borrowers.

HomeSec Business Finance, an Australian private lender founded in 2004, has lent its own money throughout that time. It funds most loans off its own balance sheet and, on some, invites wholesale investors to co-fund alongside it. Its own money sits in every loan it offers, earning the same kind of return you do.

What returns can you earn from co-funding secured loans?

Each loan you are offered has its own rate, within a range of 12% to 18% p.a. You see that rate in the due diligence pack, together with the property, the LVR, the ranking of the mortgage, the term and the borrower, before you decide whether to invest.

Several things shape where a loan sits in that range:

• Ranking. A second-ranking mortgage generally carries more risk than a first and is priced accordingly.
• LVR. How much equity stands between the loan and the property’s value.
• Property type and location. Residential and commercial property carry different LVR limits and different buyer pools.
• The borrower and the exit. How established the borrower is, and how clear and credible the plan to repay within the term is.

Because you choose each loan, you also choose your own balance of rate and risk. Some investors prefer first mortgages. Others are comfortable with second-ranking positions, which are generally priced higher. For more on the mechanics, see how direct mortgage investing works.

Where does the yield come from?

A 12% return from a loan secured by Australian property sounds high only if you compare it with a bank’s home loan rate. The borrower here is in a different situation.

Short terms. Loans run for 1 to 12 months. A borrower who needs money for four months is paying for a short, defined period, not decades of interest. The total cost to them is modest compared with the opportunity the money unlocks.

Speed. HomeSec can issue letters of offer in hours and settle within days. A bank may take weeks. For a business owner with a settlement date, a supplier deal or a tax bill, that speed is worth paying for.

Flexibility. Banks lend to rigid rules built for long-term, standard loans. A short term lender can look at the whole picture: the property, the business and the exit.

Established borrowers with equity. Most borrowers are established, thriving businesses using equity in property. They pay the premium because time matters to them, not because they cannot get credit elsewhere.

We explore this further in how private credit returns are generated.

How do the returns compare with term deposits and other investments?

The table below sets co-funding returns alongside common alternatives, as at September 2026.

Longer-run returns give another reference point. Over the 30 years to 30 June 2026, Vanguard’s figures show:

These are not like-for-like comparisons. Share returns are long-run averages that include years of sharp falls. A term deposit carries bank backing that a private loan does not. A co-funded loan’s rate is contracted in its loan agreement, but you still depend on the borrower repaying and the security standing behind the loan. Our guide to alternatives to term deposits puts the options side by side.

What does 12% p.a. look like in dollars?

The following is an illustration only, using round numbers. It assumes simple interest, a loan repaid on time and no fees or tax. Actual rates are set loan by loan and shown in each pack. You choose how much to put into each loan, from $100,000 to several million dollars; $250,000 is used here as an example.

Over a full 12 months, the same $250,000 at 12% p.a. would earn $30,000 before tax, and at 15% p.a. $37,500, compared with $13,750 in a term deposit at 5.5%.

One practical point: you only earn interest while your money is lent. Between loans, your capital sits in your own bank account, earning whatever that account pays. Your overall annual return therefore depends on the rate of each loan and how quickly you choose to commit to the next one.

How do co-funding returns compare with a pooled credit fund?

Many pooled mortgage and private credit funds pay single-digit returns. That is partly because the manager’s fees and margin sit between what borrowers pay and what investors receive, and partly because a pool averages every loan together, good and bad.

When you co-fund a loan with HomeSec, the rate you earn is set for that specific loan and shown in its pack before you commit. You are not buying an average. You can see the property, the LVR and the borrower that the rate is attached to, and decide whether the return is enough for the risk.

There is also a difference in what the return costs you in flexibility. A pooled fund can limit or pause withdrawals when too many investors want out at once, as several Australian credit funds did in August 2026. A co-funded loan repays straight to your account at maturity, and if you need out early, HomeSec will buy out your share and repay your principal.

What return should you expect across a year?

It helps to think about your return across a portfolio of loans rather than a single one.

Over a year you might co-fund several loans with different rates, terms and start dates. Your overall return will reflect the mix of rates you chose, how much of the year your capital was actually lent, and whether each loan repaid on time. A loan that runs past its maturity date delays your repayment, and in some cases a loan has to be enforced, as explained in our risks guide.

If you want to keep your capital working, you can review new packs as their current loans approach maturity, so there is little time between one repayment and the next commitment. Or you can hold cash between loans and wait for the opportunities that suit you. Both approaches work. The decision, as always, is yours.

Is the interest subject to GST?

No. Lending money is an input-taxed financial supply, so interest earned is not subject to GST.

Income tax applies in the normal way for the entity that invests. For an SMSF, earnings are taxed at 15% in accumulation phase and 0% on retirement-phase income, with additional tax on earnings for larger balances from 1 July 2026. Interest paid to non-residents is generally subject to 10% interest withholding tax, or a lower treaty rate. Your accountant can confirm your position. SMSF trustees will find more in our guide for SMSF investors.

Why are the returns higher than a bank’s if the loans are secured?

This is the question every careful investor asks, and it deserves a straight answer.

Banks fund themselves with cheap deposits and lend for long periods at low margins, following standardised rules. They are slow by design. When a sound business owner needs money quickly, for a short time or for a purpose that does not fit a bank’s template, the bank often cannot help in time.

That gap is where short term secured lending sits. The borrower pays a higher rate for a few months because the alternative, missing an opportunity or a deadline, costs more. The lender earns that rate while holding a registered mortgage over property, with a maximum LVR of 80% on residential property and lower on commercial.

A higher rate does not mean no risk. Borrowers can default and properties can take time to sell. Those risks, and how each is managed, are set out in risks and protections. But the rate is not high because the borrowers are weak. It is high because speed and flexibility are valuable.

How did co-funders fare during the GFC?

The GFC was a hard test for every income investment. Most ordinary super funds posted negative returns, and many pooled mortgage funds froze redemptions.

Through that period, HomeSec’s co-funders kept earning their loan returns. The approach behind those loans, with short terms, real equity in every property and straightforward business lending rather than development projects, is the same one HomeSec takes today.

Is a higher return worth it for you?

That depends on what you need your capital to do. If you want strong, secured income, are comfortable choosing loans yourself, and can commit capital for 1 to 12 months at a time, the gap between a term deposit and a co-funded loan is hard to ignore.

HomeSec co-invests in every loan and earns mostly when loans are repaid, so its interests sit with yours. If you’d like to see the rate, the property and the numbers on a real loan, register your interest and our Funding Manager will be in touch.