Equity Finance Mortgage
An Equity Finance Mortgage (EFM) is a new type of home loan that allows shared equity in the property you purchase. It effectively boosts your potential borrowing capacity by up to 20% and the equity is shared by you and the bank.
The great news is, it allows you to borrow more and buy a more expensive property, and keeps your repayments lower.
Heres how it works?
The Equity Finance Mortgage is effectively two mortgages. One traditional home loan and an EFM homeloan portion. The EFM portion, which can be up to 20 per cent of the purchase value of the home, charges you ZERO interest.
The term of the two loans is 25 years, and at that point you pay the lender up to 40 per cent of any capital gains or 20 per cent of any capital losses on the property.
Who is eligible?
- Must be an individual or borrowing jointly with one or more individuals – cannot be company or trust
- Property must be in an acceptable location and of acceptable type
- A deposit of 5% is required for this type of loan however it can be gifted or borrowed funds.
Here’s an example:
How to making a home purchase more affordable.
Traditional Homeloan Only
Property Value : $400,000
Deposit: $20,000
Loan Needed: $380,000
Traditional Homeloan (95% property value): $380,000
Lenders Mortgage Insurance: $7,471
Monthly repayment required: $2,883
Adding an EFM to make purchase more affordable
Property Value: $400,000
Deposit: $20,000
Loan Needed: $380,000
EFM (20% of property value): $80,000
Traditional Homeloan (75% property value): $300,000
Lenders Mortgage Insurance: $4,652
Monthly repayment required: $2,276
This is a saving of $607 per month in repayments.
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