SMSF investment opportunities: co-funding secured mortgages from your fund

Yes, an SMSF can invest in private mortgages. The ATO allows a fund to lend to unrelated borrowers on arm’s-length, documented and secured terms, if its trust deed and investment strategy allow. With HomeSec, your SMSF co-funds a specific loan it has chosen, is named on the registered mortgage, and receives principal and interest directly.

HomeSec Business Finance, an Australian private lender founded in 2004, funds most of its loans from its own balance sheet and invites wholesale investors to co-fund some of them. SMSFs commonly take part. Many co-funders invest through their SMSF as well as in their own name, choosing which loans suit which entity.

Why are SMSF trustees looking beyond term deposits?

Because a lot of SMSF money is sitting in cash. According to the ATO’s March 2026 quarter statistics, there are 672,805 SMSFs with 1.24 million members and $1.06 trillion in assets. Around 16% of those assets are in cash and term deposits.

Cash has its place, but its return is modest. As at September 2026, the RBA cash rate is 4.35%, the big four banks pay about 4.75% to 5.25% on 12-month term deposits, and the most competitive 12-month rates are around 5.3% to 5.5%, according to Canstar. After tax and inflation, that leaves little for a fund that needs to pay pensions for decades.

Co-funding secured loans offers returns of 12% to 18% p.a. on the loans you choose, with the rate set loan by loan and shown in each pack. It is a different risk from a bank deposit, and each loan’s risks are set out in its pack. For a wider comparison, see our guide to alternatives to term deposits.

Can my SMSF invest in private mortgages?

Generally, yes. The ATO’s SMSF investment restrictions allow a fund to lend money to unrelated parties, provided the loan is on arm’s-length terms, properly documented and secured. The fund cannot lend to members or their relatives, and investments in or loans to related parties are limited by the 5% in-house asset rule.

Co-funding with HomeSec fits within that framework. Borrowers are unrelated businesses, the loan agreement is fully documented, and every loan is secured by a registered first or second mortgage over Australian real estate.

Talk to your accountant to make sure your trust deed and investment strategy allow it. Our explainer on whether an SMSF can invest in private mortgages covers the rules in more depth.

How does co-funding work for an SMSF?

The process is the same as for any co-funder. The difference is whose name goes on the paperwork.

1. You receive a loan pack. HomeSec assesses each loan against its 50-point due diligence checklist and emails you the pack.
2. The trustees decide. You review it and decide whether the fund will co-fund, and how much. There is no obligation to take any loan.
3. The loan is prepared in the fund’s name. The loan agreement is in the name of the SMSF trustee, acting for the fund. The borrower signs with their own solicitor present.
4. The mortgage is lodged. The SMSF trustee is named on the registered mortgage for the fund’s exact contribution, alongside HomeSec.
5. The fund pays at settlement. The contribution is transferred from the SMSF’s own bank account.
6. Repayments go back to the fund. Principal and interest are paid straight into the SMSF’s bank account, not to HomeSec.

Because every loan is identified and documented in the fund’s name, the paper trail for your auditor is simple: one loan, one agreement, one mortgage, one set of repayments.

Why do SMSF trustees choose direct loans over pooled funds?

Control. In a pooled fund, your SMSF owns units and the manager decides where the money goes. When you co-fund with HomeSec, your fund chooses each loan, sees the property and the borrower, and is named on the security.

That distinction matters more to super than to almost any other investor. The Shield and First Guardian collapses saw around $1.1 billion invested by roughly 12,000 Australians, much of it super switched into those funds after cold calls, according to the ABC. Earlier, when Trio Capital failed in 2009, SMSF investors received no government compensation. Our summary of what happened at Shield and First Guardian sets out the lessons.

What does co-funding avoid for an SMSF?

A loan secured by Australian real estate is not tied to the share market. Your fund’s return comes from the interest rate agreed on each loan, not from daily price movements. Co-funded loans are:

• Not exposed to share-market volatility. A bad week on the ASX does not change what the loan pays.
• Not exposed to exchange rates. Loans are in Australian dollars, secured by Australian property.
• Not exposed to one company’s woes. The loan is secured by real estate, not by the fortunes of a listed company.

During the GFC, when most ordinary super funds posted negative returns, HomeSec’s co-funders kept earning their loan returns. That was a different market from today’s, but it shows how a secured, short term loan behaves differently from a share portfolio.

How is interest taxed inside an SMSF?

Simply. Interest earned by an SMSF is generally taxed at 15% while the fund is in accumulation phase, and at 0% on income that supports retirement-phase pensions, according to the ATO. From 1 July 2026, Division 296 adds extra tax on earnings for members with balances above $3 million and $10 million.

Interest on these loans is not subject to GST, because lending is an input-taxed financial supply. Your accountant will handle the fund’s tax return as usual.

Can my SMSF get its money out when it needs to?

Yes. Loans run for 1 to 12 months. When a loan matures and is repaid, the fund’s principal and interest go straight back to its bank account. Trustees can stagger maturities so money comes back around the times the fund pays pensions or expenses.

If the fund needs money back sooner, HomeSec will buy out the fund’s share of a loan and repay its principal. And you can stop co-funding at any time: once your current loans are repaid, you simply don’t take the next one. There are no redemption queues and no gating, because there is no pool to freeze. Read more in getting your money back.

How does an SMSF qualify as a wholesale investor?

Co-funding is open to wholesale and sophisticated investors, and a fund chooses how much to put into each loan, from $100,000 to several million dollars. For a super fund, though, the wholesale test has a twist. The Australian Financial Complaints Authority’s 2024 approach treats super funds as needing $10 million in net assets under the asset test, rather than the $2.5 million that applies to individuals, as reported by SMS Magazine.

There are other routes, and the right one depends on the fund. Our explainer on the SMSF wholesale investor test walks through them, and our Funding Manager can talk it through with you and your accountant.

Is co-funding right for every SMSF?

No, and it is better to know that early. Co-funding tends to suit funds with enough capital to put $100,000 or more into a loan while still holding cash and other assets alongside it, and trustees who are comfortable reading a loan pack and making a decision.

It suits accumulation-phase funds looking for strong income, and retirement-phase funds that want a return from the interest rate rather than from share prices. It also suits trustees who value knowing exactly where every dollar sits: which property, which borrower, which mortgage.

It is less suited to a fund that needs all its money at call, or whose members would rather hand every decision to a manager. Each loan runs for its term, and each decision is yours.

Want to see a loan through your fund’s eyes?

If your SMSF holds more cash than you would like, a loan pack is the easiest way to judge whether co-funding suits it. Register your interest and our Funding Manager will be in touch.