Equity Finance Mortgage (efm)
An Equity Finance Mortgage (EFM) is a new type of home loan that effectively boosts your potential borrowing capacity by anything up to 25%. It has been launched in Sydney, Melbourne and Brisbane and at the moment is available through one lender.
how does it work?
An Equity Finance Mortgage 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. The equity finance portion, which can be up to 20 per cent of the purchase value of a new home is funded by an "equity finance mortgage" on which you pay ZERO interest. The equity finance lender trades off that interest for up to 40 per cent of any future capital gains or 20 per cent of any capital losses on the property as a substitute for a traditional interest rate.
In summary:
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An Equity Finance Mortgage allows you to borrow up to 20% of a property's value
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There is no annual percentage rate applicable to an EFM loan, unless you are in default
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You are not required to make any regular monthly interest repayments throughout the EFM loan, which you can hold for 25 years
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When you sell the property or repay the EFM for some other reason, you repay the EFM amount you originally borrowed plus up to a 40% share of any increase in the value of the property.
Who would an Equity Finance Mortgage suit?
An Equity Finance Mortgage has broad owner occupier utilisation potential -for First Home Buyers and Upgraders - virtually anyone who wants to leverage more than their current buying power.Here are some examples:
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Reduce the upfront and ongoing costs of purchasing a new property
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Reduce your current monthly mortgage repayments (via a refinancing of your existing loan)
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Buy a more expensive property than you may otherwise be able to afford.
More Information or comparison from an efm accredited broker
If you would like to talk confidentially with an accredited EFM broker aboutyour efm options, email us the form below or call at any time on 13 XINC (13 9462) or direct on +61 2 9249 3739 and we will return your call within 2 business hours. EFM accredited brokers also offer the normal range of home and commercial loans. They simply have undergone training to gain efm accreditation.
How it works over time - capital profit or loss
Since no annual percentage rate is applicable to your EFM loan (unless you are in default), and you do not make any ongoing monthly interest repayments during the term of the EFM, you must agree to share with the EFM lender a proportion of any increase in the value of your property over time.
For example, if your EFM was for 20% of the property's value, you will have to give up 40% of any increase in its value when you sell the property or repay the EFM for some other reason. You will get the major share (ie: 60%) of any increase in the value of the property.
On the other hand, when it comes time to sell your property, an EFM allows you to share that loss and reduce the amount you have to repay by up to 20% of the decrease in the property's value. The share of the losses borne by the lender will depend on how much you borrow in the first place and how much your property has decreased in value. The lender will not share in any losses if they are not fully realised by you when you repay the EFM.
Why would a lender offer something like an Equity Finance Mortgage?
The EFM lender says that the original idea behind the EFM loan was to create a better alignment of interests between the borrower and lender. If you do well, and your property's value increases, the lender can do well, however, if you suffer, and you realise a loss when you sell your property, you may not be charged any regular interest on the EFM, to the extent that the EFM lender may share up to 20% of the losses, actually leaving you with less to repay on the EFM loan than they originally lent to you.
Talk to your Lawyer
We strongly recommend that you obtain independent legal and financial advice in relation to Equity Finance Mortgage loans prior to entering into a loan contract.
What can efm's be used for?
EFM's are available for standard residential loan purposes such as purchase or refinance of an owner occupied property, including debt consolidation.
EFM's are NOT available for the following purposes:
- Building loans with progress payments
- Investment
- Other personal use
- Loan portability
- Business purposes
- Vacant land
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