Look to contributory mortgages for income

Investors will need to up their ante in the hunt for other income sources outside of their familiar grounds, after the Reserve Bank dropped interest rates to an all-time low, Australian Unity Investments said.

Australian Unity Investments head of mortgages, Roy Prasad, said investors would need to invest four times as much in a term deposit, to earn the same amount of interest, as they did before the global financial crisis.

But for some investors, contributory mortgages were filling the income gap, as they provided higher levels of income, without the need to take on additional risk, he said.

Under a contributory structure, investors could select individual mortgage loans over commercial properties or create a portfolio of investments that suited their risk and return requirements, Prasad said.

Investment in commercial mortgages offered a number of advantages to investors, such a low volatility, higher returns than other floating-rate investments, low levels of loss and low correlations to other assets classes.

Investors could also select the term of their investment, up to a maximum of two years, or roll over into a new contributory mortgage opportunity after the term expired, Prasad said.