Australian Mortgage and Loan Information

Essentially an Equity Finance Mortgage it is a home loan offering for owner occupiers only, where you joint venture with your lender. Your lender takes a stake in your property in lieu of regular monthly repayments or interest during the life of your loan.

When you come to sell your property or pay off your loan, you repay the original amount borrowed using the Equity Finance Mortgage plus up to a 40% share of any increase in the value of your property. Conversely, if you ever have to sell your property at a loss, your lender will possibly share up to 20% of any realised loss on your property. There are rules about who you can sell to if you have to realise a loss, including, not selling to a related party.

Application procedure is similar to all other home loan types. So Lenders Mortgage Insurance may be payable if your LVR is not within your lenders guidelines. By using an Equity Finance Mortgage in conjunction with a traditional home loan, it is possible to reduce monthly loan repayments by as much as 25% from what you would other wise have to pay, using a traditional home loan only.

Features of Equity Finance Mortgage Loans

You can borrow up to 20% of a property’s value using an Equity Finance Mortgage.
You will pay no debit interest or make any regular monthly repayments on your Equity Finance Mortgage for the entire life of the loan, which can be up to 25 years. It can be used in conjunction with a standard home loan, but if you default payments on the standard loan you may be up for debit interest on the Equity Finance Mortgage.

Benefits of Equity Finance Mortgage Loans

Help you leverage into a better home in an area of your choice.
Cut current mortgage repayments with a full or part refinance of a standard loan.
Can help reduce up front cost of lenders mortgage insurance premium and ongoing repayments on a new home purchase.

Tips and strategies

Use an EFM to buy a more expensive property while keeping your repayments at a level you can afford. For example: if you have saved a deposit of $150,000 to buy your home and you have been approved to borrow to a limit of $400,000, you could purchase a home up to a limit of $550,000. If you use an EFM with a traditional home loan of $400,000 your limit can improve to $687,500. The EFM would be $137,500 or 20%. This can be the difference between the beachside retreat you always wanted and the ex trust home you could otherwise afford.

If for any reason you are finding tough to meet your current mortgage repayments, refinancing to an EFM may just provide the relief you need. For example: If your current home loan is $350,000 on a property valued at $550,000 and your current monthly repayments are $2,818, you could free up approximately $850 per month by refinancing $110,000 of your current loan to an EFM. What could you do with that extra $200 a week?

Only a limited number of lenders are offering Equity Finance Mortgage’s, but you can apply over the Internet and ask the Home Loan Club for a free no-obligation quote on a Equity Finance Mortgage Loan.

The steps set out below explain the home loan
process, from enquiry to settlement:

Enquiry stage
There is an extensive range of home loans on offer. Your best bet is to arrange a meeting with a reputable mortgage broker. They will give you an indication of how much you can borrow, so you’ll know what your home loan budget is. They can also arrange a pre-approval of your loan if you have the information they need.

Property Search and Application
Search the real estate pages, jog or walk in a suburb you like, when you have found a property you’re interested in, sign a contract subject to “personally suitable finance“. Enquire about some home and contents insurance, so you know how much you will be up for. Contact your broker again and apply for a home loan, or home mortgage. When applying, you will require some financial documents including proof identity, income, savings history and proof of deposit. Your broker or lender will be able to provide you with a comprehensive list of information required. The broker will take your application, attach a letter of their own explaining your needs, situation, their recommendations and submit it to a lender.

Conditional approval
Usually once your application has been reviewed by your lenders credit department, you will receive a conditional approval letter. This letter will detail your loan amount subject to a property valuation and other conditions which may include Lenders Mortgage Insurance. At this time you should engage a conveyancer. Your broker will be able to put you onto a good one.

Property valuation
Your lender will engage an accredited property valuer who will perform an accurate valuation on your proposed property purchase to satisfy themselves they should use it as collateral and to ensure you are getting what you are paying for.

Formal approval
After reviewing your application, carrying out credit checks, assessing the valuation, confirming your income and deposit, your lender will send a letter confirming your formal loan approval to your Mortgage Broker. They should call you with the good news. A few days latter you will receive a loan offer/mortgage document detailing the amount, fees and conditions of your loan. These documents should be read carefully before signing. Lenders make mistakes. Get your Mortgage Broker to explain things you don’t immediately understand. Return the documents quickly after signing. You do not want to delay settlement, your lender will appreciate your quick action.

Loan settlement
This normally takes 4 – 8 weeks to get to this point. Your conveyancer should be in control of the situation here, as they will act as the go between you, the lender and the seller. If you need to settle quickly, get your Mortgage Broker to put some heat on your lender.

Settlement letter
After settlement of your loan, you will receive a letter from your conveyancer and your lender detailing your settlement figures. It is a good idea to make an appointment with your Mortgage Broker at this point and review the final details of the loan, including payments and exit fees. Keep in close contact with your Mortgage Broker, use their expertise moving forward. They will have plenty of ideas and tools like a mortgage statement checker to help you. They will also be there to advise if times get tough.

Hope this helps. Start looking for a good Mortgage Broker today, make them a friend. Their lively hood depends on your happiness, so they will generally look after you better than a Bank or Mobile Institutional Lender.

Sharing risk and profit an acceptable outcome

The real question here is how comfortable you are with being in partnership with your mortgage holder. It is very likely you will make a profit when you sell your house, so will you be ok cutting the Mortgage Lender a check for 40% of your profit. I mean if you buy a house today for $400,000 (including all fees and stamp duty) with the help of an Equity Finance Mortgage loan and sell it for $500,000 in six months, will you be happy to send your Mortgage Lender a check for $40,000? If you think this will be ok, then I say you can have a chance at a successful partnership with your Mortgage Lender and an Equity Finance Mortgage should be one of your options.

An Equity Finance Mortgage has great potential to help owner occupiers leverage their current buying power and afford a better address or even survive a credit crisis. For example, a first homebuyer who may only afford a property worth $400,000 may be able to purchase a property for $500,000 with the help of an Equity Finance Mortgage. A current home owner may be able to refinance to reduce current monthly mortgage repayments by as much as 20%, and free up their cash flow for other important family expense’s or to top up their superannuation.

The new Equity Finance Mortgage needs to be evaluated whatever your situation. I suggest you ring your Mortgage Broker and find out if you can make it work in your favor. Mortgage rates will always fluctuate, just look at the historical rates, but the right sort of Mortgage Loan will make life easier.

25% more buying power for first home buyers and up-graders

John Howard’s legacy

The 2003 Prime Minister’s Home Ownership Task Force formed by then Prime Minister John Howard, fielded a large number of new ideas about increasing the affordability of home ownership in Australia. One of them has become a reality.

A new type of mortgage has been unveiled this year that can boost a home buyer’s spending power by 25%. Called an Equity Finance Mortgage, this new mortgage product will allow owner occupier home buyers to purchase a home up to 25 per cent more expensive than they might have been able to afford using a traditional stand alone home loan. Without paying more per month.

This is good news for first home buyers especially, you now have a better chance of gaining a toe hold in the housing market. Up-graders or itch cycle home buyers will also benefit, allowing them to head to more up-market address’s sooner.

The potential mortgage holder or home buyer must have a 5 per cent deposit. They must also qualify to service a conventional home mortgage equal to or less than 75% of the purchase/valuation price of the home. The rest of the purchase can be funded by an “Equity Finance Mortgage”.

What’s the catch? Well, one Bank is calling their offering a Shared Equity Mortgage, that is Bank speak for joint venture. Your lender is offering to do a joint venture with you. When you sell your house in the future you will have to share 40% of any gains with your lender. That’s right! 40% of the gain as a substitute for 25 years of loan repayments. It sounds to good to be true, so there has to be some devil in the detail and I strongly recommend you consult a quality Mortgage Broker.

It is worth a look, but get some advice. I for one will be exploring the possibilities.