How A Shared Equity Home Loan, With An Equity Finance Mortgage, Can Make The Australian Dream A Reality
Article by Trevor McBride
There are still ways to achieve the Great Australian Dream…For many, buying that home, whether it’s your first home or a subsequent one, feels just out of reach. For others, managing home loan repayments can sometimes become a struggle or simply just prevent you from doing some of the things you want to do.Now there is a new home loan available that can help you reduce your home loan repayments or even purchase a more expensive property than you may otherwise be able to afford. An Equity Finance Mortgage, (EFM) works in conjunction with a traditional home loan. Together they let you move some of the expense of a traditional home loan to later when you eventually sell your property.An EFM allows you to borrow up to 20% of the property value and you pay no interest and make no regular payments. Example: Jack and Julie want to purchase a home valued at 0,000.TRADITIONAL HOME LOANProperty Value = 0,000Deposit = ,000Loan Needed = 0,000Traditional Home Loan (95% of property Value) = 0,000Lenders Mortgage Insurance Premium = ,417Monthly Repayments Required = ,883ADDING AN EFM TO MAKE PURCHASING A HOME AFFORDABLEProperty Value = 0,000Deposit = ,000Loan Needed = 0,000EFM (20% of property value) = ,000Traditional Home Loan (75% of property value) = 0,000Lenders Mortgage Insurance Premium = ,652Monthly Repayments Required = ,276Adding an EFM reduces the monthly repaymentsWhile an EFM shares in the capital growth of your property when you eventually sell, it also takes its share in the loss if the property has depreciated, so you don’t end up wearing the total loss. An EFM allows people toLook in areas to buy where they may have originally thought out of their reach. Reduce their existing mortgage repayments to allow for other things, such as education, property renovation, holiday etc. AN EFM OVER TIME.In return for the benefits available to you when you take out an EFM, because no annual percentage rate is applicable to your loan (unless you are in default) and you do not make monthly interest repayments during the term of an EFM, you must agree to share any increase in the value of your property with the lender.AN INCREASE IN PROPERTY VALUEFrom the previous example: To repay their EFM in year 6, Jack and Julie must repay ,900 on top of the ,000 they originally borrowed. They have made a capital gain of 4,850 and have 0,646 to contribute towards their next property purchase. They have gone from having 5% equity in their home to 30%. In addition, they have saved ,696 in repayments as compared to a traditional home loan over the same period.YEAR 6Property Value at Sale = 4,750Less Original Property Value = 0,000Capital Appreciation = 4,750Original EFM Amount (20%) = ,000Plus Appreciation Payment (40%) = ,900Total EFM Payment = 3,900Traditional Home Loan Repayment = 0,20460% of Appreciation for Jack and Julie = 0,850Jack and Julie’s equity after repaying the EFM and traditional home loan = 0,646Of course individual circumstance may depend on eligibility. We recommend talking to a qualified EFM consultant for full details about this product.For More Information Please Contact www.touchstonefinancial.com.au
About the Author
Trevor has been in the Mortgage Brokering Industry for many years with his partner. Their years of experience are now dedicated to helping their customers recieve the right advise for them and their individual situation. For more information please contact Touchstone Financial