Glossary

Private credit and mortgage investment glossary

Private credit has its own vocabulary, and some of it is used loosely. Here are the terms that matter when you invest in secured loans, each defined in a sentence.

Reviewed by Jason Brockmuller, Joint CEO Updated 26 September 2026 · 4 min read

Private credit is lending by non-bank lenders and funds, and investing in it comes with its own vocabulary. This glossary defines the terms you will meet when you invest in secured loans, from LVR, caveats and priority to redemption freezes, wholesale investor tests and interest withholding tax, each in one plain-English sentence.

HomeSec Business Finance, an Australian private lender founded in 2004, uses these terms every day. Some are used loosely elsewhere, particularly “direct”, “secured” and “first mortgage”, so it is worth being precise. The full A-to-Z list follows below; here is how the terms fit together.

What is the difference between private credit, pooled funds and direct mortgage investment?

Private credit is the broad market: lending to businesses and property owners outside the banks. In Australia it is worth around $200 billion, according to ASIC.

Investors reach it in two very different ways. In a pooled mortgage fund, usually a managed investment scheme run by a responsible entity, you own units and the manager chooses the loans. In a contributory or direct mortgage investment, you lend into one identified loan and your interest is recorded against it. Co-funding with HomeSec is the direct version, with HomeSec’s own money in the same loan.

The difference shapes everything else: what you own, what you can see and how you get your money back. Our comparison of direct mortgage investment vs pooled funds sets it out side by side.

Which terms describe the security behind a loan?

Security terms answer one question: what stands between a loan and a loss?

A registered mortgage is recorded on the property’s title under Australia’s Torrens title system. Where several lenders have security over the same property, priority decides who is repaid first: a first mortgage ranks ahead of a second mortgage. A caveat is a lighter form of protection that records an interest on the title without registering a mortgage.

The valuation sets the property’s value, and the LVR measures the total debt against it. The equity buffer is what is left over, and it is the most important number in any secured loan. HomeSec lends to a maximum 80% LVR on residential property and lower on commercial. Our guide to first and second mortgage investments explains how ranking and LVR work together.

What do the default and enforcement terms mean?

Every loan has an exit strategy: the planned route to repayment at loan maturity, such as a sale, a refinance or business proceeds. When a loan is repaid in full, the mortgage is removed from the title by discharge.

If a borrower does not repay, default interest usually applies to overdue amounts. If the default is not fixed, the lender can become a mortgagee in possession and, if needed, arrange a mortgagee sale. Sale proceeds repay costs first, then lenders in order of priority. With HomeSec, the loan is enforceable through the courts in every state, and HomeSec meets the legal costs of recovery on defaulted loans. Read more in what happens if a borrower defaults.

Which terms describe getting your money back?

In a pooled fund, you get your money back through a redemption: asking the manager to buy back your units. That works while the fund has enough cash. When it doesn’t, the fund may impose a redemption freeze, also called gating. The underlying problem is usually a liquidity mismatch, where investors were promised faster access than the loans can deliver. In August 2026, several Australian private credit funds limited or paused redemptions, as reported by the ABC.

A loan held directly works differently. It is repaid at maturity, straight into your account. If you need to leave early, an early buy-out means HomeSec purchases your share and repays your principal. Our explainer on what a redemption freeze is covers the pooled-fund side in more depth.

Who can invest, and under which rules?

Co-funding is open to wholesale investors, the umbrella term under the Corporations Act. A sophisticated investor usually qualifies under section 708 with an accountant’s certificate or by investing $500,000 or more in an offer. That $500,000 figure is a legal eligibility test, not the amount you have to put into each loan; once you qualify, you choose how much to contribute to each loan, from $100,000 to several million dollars. A professional investor controls at least $10 million in gross assets or is a licensee or large fund. Our guide for wholesale investors explains each test in plain English.

Which tax and super terms matter?

For an SMSF, the key rules are that investments must be made at arm’s length and that related-party investments are limited by the in-house asset rule, according to the ATO. Our SMSF investors guide shows how co-funding fits.

Non-residents pay interest withholding tax on Australian interest. And because lending is an input-taxed supply, interest carries no GST.

Which benchmarks are worth knowing?

Most investors compare secured lending with a term deposit, whose rates follow the RBA cash rate, 4.35% as at September 2026. Bank deposits are backed by the Financial Claims Scheme. Private credit and mortgage investments are not, as Moneysmart notes, which is why the structure of each loan matters so much. Before you commit to any loan with HomeSec, you receive its due diligence pack, the place where all of these terms meet a real property and a real borrower.

See the terms in a real loan

Definitions only go so far. If you’d like to see how they apply to an actual loan, register your interest and our Funding Manager will be in touch.

A–Z of terms

Accountant's certificate: An accountant's certificate is a statement from a qualified accountant, no more than two years old, confirming net assets of at least $2.5 million or gross income of at least $250,000 in each of the last two financial years.
Arm's length: Arm's length means dealing on normal commercial terms, as if the parties were unrelated, which SMSF investments are required to be.
Cash rate: The cash rate is the Reserve Bank of Australia's target interest rate for overnight loans between banks, and it was 4.35% as at September 2026.
Caveat: A caveat is a notice lodged on a property's title that records a claimed interest in the property and prevents certain dealings from being registered without notice to the person who lodged it.
Co-funding: Co-funding is two or more lenders funding the same loan side by side, each named on the security for their share; with HomeSec, investors co-fund alongside HomeSec's own money.
Contributory mortgage: A contributory mortgage is an arrangement where several investors contribute to one identified loan and each holds an interest in that loan, rather than units in a pool.
Default interest: Default interest is a higher interest rate that applies to overdue amounts after a borrower breaches the terms of a loan.
Direct mortgage investment: Direct mortgage investment means lending your money into a specific secured loan you have chosen, with the loan in your name and your interest recorded on the mortgage.
Discharge: A discharge is the removal of a mortgage from the property's title once the loan it secures has been repaid in full.
Due diligence pack: A due diligence pack is the file HomeSec emails for each loan, setting out the property, LVR, borrower, purpose, terms, exit and risks for the investor's own review.
Early buy-out: An early buy-out is HomeSec purchasing an investor's share of a loan before maturity and repaying their principal, so the investor can exit early.
Equity buffer: The equity buffer is the gap between a property's value and the total debt secured against it, which absorbs falls in value, sale costs and interest before a lender's capital is at risk.
Exit strategy: An exit strategy is the planned way a loan will be repaid at maturity, such as the sale of a property, a refinance or proceeds from the borrower's business.
Financial Claims Scheme: The Financial Claims Scheme is the Australian Government scheme that backs deposits with authorised banks, building societies and credit unions up to $250,000 per account holder per institution, and it does not cover private credit or mortgage funds.
First mortgage: A first mortgage is the mortgage that ranks first in priority, so it is repaid first from the proceeds if the property is sold.
In-house asset: An in-house asset is an SMSF's loan to, investment in or lease with a related party, which is limited to 5% of the fund's total assets.
Input-taxed supply: An input-taxed supply is a GST category, which includes lending, where no GST is charged, so interest earned on a loan carries no GST.
Interest withholding tax: Interest withholding tax is a 10% tax, or a lower treaty rate, withheld from interest paid to non-residents of Australia, and it is generally a final Australian tax.
Liquidity mismatch: A liquidity mismatch occurs when a fund promises investors faster access to their money than its underlying loans or assets can be turned into cash.
Loan maturity: Loan maturity is the date a loan's term ends and the principal and any outstanding interest fall due for repayment.
LVR (loan-to-value ratio): The loan-to-value ratio is the total secured debt, including any debt ranking ahead, expressed as a percentage of the property's value.
Managed investment scheme: A managed investment scheme is an arrangement where people pool money to be invested by someone else, and the members do not have day-to-day control over how it is invested.
Mortgagee in possession: A mortgagee in possession is a lender that has taken control of a mortgaged property after the borrower defaulted, usually so it can sell the property and repay the debt.
Mortgagee sale: A mortgagee sale is the sale of a property by the lender, using the powers in its mortgage, to recover an unpaid loan.
Pooled mortgage fund: A pooled mortgage fund combines many investors' money and lends it across a portfolio of loans chosen by the manager, with investors owning units in the fund rather than any specific loan.
Priority: Priority is the order in which secured lenders are repaid from the sale of a property, with a first mortgage ranking ahead of a second.
Private credit: Private credit is lending to businesses and property owners by non-bank lenders and funds, arranged privately rather than through banks or public bond markets.
Professional investor: A professional investor is a financial services licensee, large fund or person controlling at least $10 million in gross assets, treated as wholesale under section 708(11) of the Corporations Act.
Redemption: A redemption is an investor withdrawing money from a fund by asking the manager to buy back or cancel their units.
Redemption freeze (gating): A redemption freeze, or gating, is when a fund suspends or limits withdrawals, so investors cannot get their money out on the usual terms.
Registered mortgage: A registered mortgage is a mortgage recorded on the property's title at the state land titles office, giving the lender a registered interest in the property as security for the loan.
Responsible entity: A responsible entity is the licensed public company that operates a registered managed investment scheme and is legally responsible to its members.
Second mortgage: A second mortgage ranks behind a first mortgage over the same property and is repaid from sale proceeds only after the first mortgage has been repaid in full.
Section 708 (s708): Section 708 of the Corporations Act sets out when securities can be offered without a disclosure document, including offers to sophisticated and professional investors.
SMSF: A self-managed super fund (SMSF) is a private superannuation fund, regulated by the ATO, whose members are usually also its trustees.
Sophisticated investor: A sophisticated investor usually means someone who qualifies for wholesale offers under section 708(8) of the Corporations Act, with an accountant's certificate or by investing $500,000 or more in an offer.
Term deposit: A term deposit is money deposited with a bank or other authorised deposit-taking institution for a fixed term at a fixed interest rate.
Torrens title: Torrens title is Australia's system of land registration, in which the state register records ownership and registered interests such as mortgages.
Valuation: A valuation is a professional assessment of a property's current market value, used to set how much can be lent against it.
Wholesale investor: A wholesale investor is an investor who meets a Corporations Act test of wealth, income, investment size or professional status and can be offered investments without a retail disclosure document.

Frequently asked questions

What is private credit?

Private credit is lending to businesses and property owners by non-bank lenders and funds, arranged privately rather than through banks or public bond markets. In Australia it is a market of around $200 billion. Investors can access it through pooled funds, where they own units, or directly, by lending into specific secured loans.

What is the difference between a pooled mortgage fund and a contributory mortgage?

In a pooled mortgage fund, your money is combined with other investors' money, the manager chooses the loans, and you own units in the fund. In a contributory or direct arrangement, you contribute to one identified loan, you can see the property and borrower, and your interest in that specific loan is recorded.

What does LVR mean in mortgage investing?

LVR, or loan-to-value ratio, is the total secured debt as a percentage of the property's value, including any debt that ranks ahead. A loan of $700,000 against a $1 million property has a 70% LVR. The lower the LVR, the larger the equity buffer protecting the lender if the property has to be sold.

What is a redemption freeze?

A redemption freeze is when a fund suspends or limits withdrawals, so investors cannot get their money out on the usual terms. It usually happens when more investors want to withdraw than the fund can pay from cash and maturing loans. Several Australian private credit funds limited or paused redemptions in August 2026.

Are private mortgage investments covered by the Financial Claims Scheme?

No. The Financial Claims Scheme backs deposits with authorised banks, building societies and credit unions, up to $250,000 per account holder per institution. Private credit and mortgage investments, whether pooled or direct, are not covered, so the protection comes from the loan's structure: its security, LVR, term and the lender's discipline.

Sources

Figures are as at 26 September 2026 unless stated. This page is reviewed by Jason Brockmuller, Joint CEO of HomeSec Business Finance, and updated as markets change.