Getting your money out: how co-funded capital comes back to you

Getting your money out of an investment in NZ is straightforward when you co-fund a loan directly. At maturity the borrower repays, and your principal and interest go to your own bank account. If you need it sooner, HomeSec will buy your share and repay your principal on request. There is no pool, so nothing can be gated or frozen.

HomeSec Business Finance, a private business lender lending since 2004, with its New Zealand office in Auckland, has its own money in every loan it offers to co-funders. That fact sits behind everything on this page. Your capital is attached to one identified loan with its own borrower, property and end date, not to the cash flow of a fund with many investors to satisfy.

What are the ways your money comes back?

There are three in the normal course of things, and you control two of them.

A fourth path applies only when something goes wrong. If a borrower defaults, the mortgage is enforced and the sale proceeds repay the loan. That is covered further down, because it is the part most investment pages skip.

What happens when a loan reaches maturity?

The borrower repays, usually from the property sale or refinance described in the pack, and the mortgage is discharged. Your principal and the interest owed to you are paid directly into your bank account. The money isn’t routed through HomeSec and isn’t held back by a fund. HomeSec keeps you posted by SMS and email as the date approaches.

None of that timing depends on anybody else. New money coming in, a manager’s view of liquidity, a rush of other investors wanting out: none of it changes when your loan repays.

Then the decision is yours again. Fund the next loan that suits you, or leave the money where it is. If you hold several loans with different end dates, one is usually coming up for repayment within a few months, which keeps your capital moving and your choices fresh.

How do you exit a loan before it matures?

Ring the Funding Manager, who is available seven days on 09 888 6550, and say you’d like out. HomeSec will buy your share of the loan and repay your principal. You don’t have to find a buyer, wait for a quarterly window or join a queue.

HomeSec can do this because it is already a lender in the loan and funds most of its lending from its own balance sheet. Taking over your share is the same kind of decision it makes every day with its own money.

Think of it as a safety valve. It is there for the things nobody plans: a property purchase that comes up sooner than expected, a family need, a business opportunity that won’t wait. It works best alongside loan terms that already fit your likely needs, which is covered below.

Why can’t a co-funded loan be gated or frozen?

A redemption freeze is a fund stopping or limiting withdrawals, usually under powers in its trust deed. It happens when a fund has offered regular access to money it has lent out for longer. If more investors ask to leave than the fund has cash for, the manager can sell loans, often at a discount, or close the door. Closing the door is the usual choice, and it can come with little warning.

A fund can be solvent and still frozen. That is small comfort if the money was meant for a house settlement, a provisional tax bill or a family decision.

Co-funding removes the mismatch. You aren’t promised access to a pool. You hold a share of one loan with a set end date, and no other investor’s withdrawal comes ahead of yours or draws on your repayment. Our explainer on what a redemption freeze is walks through the mechanics.

How have New Zealand investors been caught out before?

Often enough that it still shapes how many people here invest. Some of the better-known cases:

Across the wider sector, the FMA counts 51 finance companies that went into receivership or liquidation, or froze payments, between 2006 and 2012. Even the better outcomes took years, and time without your own capital is a cost in itself.

The lesson isn’t that every pooled fund fails. It is that inside a pool, your access to your money depends on decisions and events you can’t see. If you are in a fund now, our guide to getting money out of a mortgage fund sets out your options.

What if a borrower repays late?

It happens, and pretending otherwise wouldn’t help you plan. A sale takes longer than expected, a bank refinance is slow to settle, or a payment the business was counting on arrives late. Here is where that leaves you:

• Your security doesn’t move. Your name stays on the registered mortgage for the amount you contributed.
• HomeSec works the loan. It stays in contact with the borrower to complete the planned exit, and the loan may run past its maturity date while that happens.
• The law sets the steps for enforcement. Under the Property Law Act 2007 the lender must first serve a default notice giving not less than 20 working days to put things right. That becomes 60 working days where the borrower hasn’t repaid principal at expiry but has kept paying interest for three months or more and the lender has accepted it. A sale usually follows a registered valuation and about four weeks of marketing, and the lender must take reasonable care to obtain the best price reasonably obtainable. Proceeds go first to costs, then to the debt.
• Equity absorbs the hit. Lending stops at 80% LVR on residential property and lower on commercial, which leaves room for costs, interest and a fall in value before capital is reached.

HomeSec runs any enforcement with specialist lawyers and has its own money in the same loan. The honest trade-off is time: enforcement takes months, and a late loan means a late repayment. If one of your loans is running behind and your own plans shift, talk to us early. Our guide to what happens if a borrower defaults goes through each stage.

How should you plan around loan terms?

Start with when you will need the money, then pick loans to fit.

Match the term to the need. Say you have NZ$250,000 earmarked for a property settlement in nine months. A loan maturing in five or six months leaves a margin in case the borrower is late. Money with no fixed purpose can move from loan to loan as each one repays.

Spread the end dates. Several loans maturing at different times bring your capital back in stages and spread your exposure across more than one borrower and property.

Hold cash for fixed bills. Provisional tax, trust distributions and other known payments are better met from cash than from a loan due to repay that same week.

Keep the buy-out in reserve. It is for surprises, not the plan.

Trustees have a particular reason to think this through. Among the matters the Trusts Act 2019 lets a trustee weigh when investing are the length of the investment term and marketability. A loan with a known end date and an early exit on request is easy to record against both. Our guide for family trusts and companies has more.

Why does the structure matter more than the promise?

Every investment looks liquid when nobody wants to leave. The real test comes when many people want out at once.

In a pooled fund, withdrawals compete with each other. Early requests may be paid while later ones are frozen, and that is precisely what encourages a run. In a co-funded loan, nobody is competing with you. Your repayment rests on your loan’s borrower, property and equity buffer, and another investor leaving changes nothing for you. Our comparison of direct mortgage investment vs pooled funds sets the two structures side by side.

Would you like to see an exit written into a real loan?

Every pack sets out the term, how the borrower plans to repay and the property behind the loan. To see one for yourself, register your interest and our Funding Manager will be in touch, with no obligation to take it further.