Do you have limited cash reserves? Do you want to save some money or maybe you want to increase your borrowing capacity?
Equity mortgages can be your best opportunity to refinance or to buy a new home! Equity mortgages, also called an Equity Finance Mortgage (EFM), involves your equity partner (Super Funds) during the execution of your refinance or new purchase.
How does it work?
If you want buy a property but you don't have enough money, or you want to buy a more expensive home, your equity partner can invest up to 50% of the value of the property that you want buy. You don't pay interest on the equity mortgage but it participates in the future capital gain along with you.
What are the benefit of this new mortgage model:
- Lower your Loan to Value Ratio (LVR)
- Lower Lenders Mortgage Insurance (LMI) or eliminate LMI all together
- Upgrade the home or the location
Let's look at the different scenarios:
- Property Value: $800,000
- Cash: $120,000
- Loan: $680,000
Traditional Mortgage
| Property Value |
$800,000 |
|
| Deposit |
$120,000 |
| Loan |
$680,000 |
| LVR |
85% |
| LMI |
-$8,092 |
| Rate |
9% |
| Repayment |
-$5,341 |
|
|
By using the equity mortgage you can buy the same property but your monthly repayment will be lower and you can use much more money for education and opportunities for children.
Equity Mortgage 1st Case
|
|
Saving |
| Property Value |
$800,000 |
|
| Deposit |
$120,000 |
|
| Equity Loan |
$160,000 |
|
| Loan |
$520,000 |
|
| LVR |
65% |
|
| LMI |
-$1,300 |
$6,792 |
| Rate |
9% |
|
| Repayment |
-$4,153 |
$1,278 |
|
|
Or you could save money and pay a smaller deposit and invest the difference in other way.
Equity Mortgage 2nd Case
|
|
Saving |
| Property Value |
$800,000 |
|
| Deposit |
$40,000 |
|
| Equity Loan |
$400,000 |
|
| Loan |
$360,000 |
|
| LVR |
45% |
|
| LMI |
-$380 |
$8,092 |
| Rate |
9% |
|
| Repayment |
-$2,875 |
$2,556 |
|
|
Or finally having the same repayments as a common loan, you could upgrade to a bigger home by using the same deposit amount.
Equity Mortgage 3rd Case
|
|
Saving |
| Property Value |
$1,160,000 |
|
| Deposit |
$120,000 |
|
| Equity Loan |
$400,000 |
|
| Loan |
$640,000 |
|
| LVR |
65% |
|
| LMI |
-$1,000 |
$7,092 |
| Rate |
9% |
|
| Repayment |
-$5,111 |
$319 |
|
|
The equity mortgage doesn't charge interest but shares in the future gain in the property value.
Equity in % as
property value |
Share of any increase
of you pay in the future |
Share of any gain you
experience in the future
|
Share of any loss you may
experience in the future
|
| 10% |
17.50% |
82.50% |
10% |
| 30% |
52.50% |
47.50% |
30% |
| 50% |
87.50% |
22.50% |
50%
|