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| Lower your monthly loan repayments AND sell in 9 years when your property has increased in value |
John and Mary want to purchase a home for $400,000. They have a $20,000 deposit and enough additional funds to meet other costs associated with the purchase. With a traditional home loan, this is what their scenario would look like:
| Property value: |
$400,000 |
Deposit:
|
$20,000 |
| Loan needed: |
$380,000
|
Traditional Home Loan required
(95% of property value): |
$380,000 |
Lenders Mortgage Insurance (LMI) premium:
|
$7,471 |
| Monthly loan repayments required: |
$2,883 |
If John and Mary were to get an EFM® in addition to their traditional home loan, their scenario would look like this:
| Property value: |
$400,000 |
Deposit:
|
$20,000 |
| Loan needed: |
$380,000
|
EFm Contribution (20% of property value):
|
$80,000
|
Traditional Home Loan required
(75% of property value): |
$300,000 |
Lenders Mortgage Insurance (LMI) premium:
|
$4,562 |
| Monthly loan repayments required: |
$2,276 |
Example excludes application fees and other fees associated with the loan such as valuation fees, account keeping fees and transaction fees as well as transaction costs associated with purchasing a home such as stamp duty in respect to LMI and government fees. Please note the example assumes that the interest rate on the traditional home loan only and the traditional home loan taken in conjunction with an EFM is the same. This assumption may not apply to your circumstances. Interest rates available on a traditional home loan only may be lower than the interest rate available on a traditional home loan taken in conjunction with an EFM. Ask your lender to compare this for you taking your circumstances into consideration.
For the assumptions used in calculating this example please refer the EFM site assumptions & disclaimer detailed below.
By using an EFM in conjunction with a traditional home loan and agreeing to share any future increases in the value of their property, John and Mary have made their purchase more affordable by reducing:
a) their regular monthly loan repayment by $607 a month
b) the Lenders Mortgage Insurance premium by $2,819
Let's say 9 years pass and John and Mary decide to sell their home. In that time their home has increased to $799,602 in value. At this time, the EFM requirement to pay back the original 20% contribution plus 40% of the capital gain will be triggered.
Let's also assume that John and Mary have made monthly loan repayments over the 9 years to pay their original $300,000 mortgage down to $249,208.
| Property value after 9 years: |
$799,602 |
| Capital gain (original value $400,000): |
$399,602 |
| Traditional Mortgage to be paid out: |
$249,208 |
| Original EFM contribution (20% of original value): |
$80,000 |
| 40% of capital gain ($399,602 x 40%) |
$159,841 |
| Total to be paid to EFM ($80K + $159,841K): |
$239,841 |
| Total to be paid out (traditional mortgage + EFM) |
$489,049 |
| Remaining funds for John and Mary: |
$310,553 |
Example excludes discharge administration fees, government charges and other fees and charges associated with discharging a loan and the associated mortgage.
For the assumptions used in calculating this example please refer the EFM site assumptions & disclaimer detailed below.
So, John and Mary have had less of a mortgage repayment burden over the decade, which has given them a better quality of life, and they have still gained from the transaction.
You might be thinking, but if they didn't use EFM they would have had $558,420 in remaining funds after the sale of their home. But you must remember that their traditional mortgage without an EFM would have been $380,000 rather than $300,000. And they would have saved $65,544 in monthly loan repayments, which they could have used to reduce their traditional loan balance with additional lump sum payments. AND the interest repayments alone on that extra $80,000, based on interest rate of 7.8% over 9 years, would have been $52,000. Very quickly the difference in outcome becomes very similar, and you have to consider the value of a better quality of life during that decade.
BACK
EFM site assumptions & disclaimer
This website contains examples and graphs that illustrate the financial impact of using EFM loans. They do not represent what will actually happen for any loan that you may take as property prices, interest rates and other circumstances will change. The examples and graphs are formulated based on a set of assumptions outlined below. These assumptions are not forecasts or predictions and may or may not reflect actual events.
Each example assumes that the EFM is for 20% of the property's value at the outset, has a 0% interest rate and that no default interest is payable. The actual EFM may be for less than 20% of the property's value and the outcomes may vary considerably if default interest becomes payable. All examples of how any increase in the value of the property is shared assume that the value of the property has increased by an annual nominal rate of growth of 8%. This is based on estimates of historical median rates of capital growth attributable to Australian residential real estate over the period 1986 to 2005. Actual rates of growth may be greater or less than this number.
If the example contains a traditional home loan comparison, it assumes that the traditional home loan interest rate is 7.80% p.a., the loan term is 25 years, all principal and interest payments are made on time, the only repayments made are the required repayments - that is no additional repayments or redraws are made, and no event of default has occurred and default interest is not incurred at anytime during the life of the loan.
The actual traditional home loan term and interest rate may be greater or less than these assumptions and individual circumstances such as additional repayments may affect the outcomes considerably. The assumed interest rate of 7.80% for the traditional home loan used in the examples is based on the ‘Indicator Lending Rates – Banks’ published by the Reserve Bank of Australia for a standard variable rate housing loan as at October 2006.
If the example contains Lenders Mortgage Insurance, the premium payable is based on rates effective for the relevant product as at the date of this booklet.
Assumptions specific to an example are detailed in the example. Numbers may have been rounded to the nearest thousand or one percent where relevant. Fees and charges other than those mentioned in the examples such as application fees, valuation and legal fees, conveyancing fees and stamp duty on the purchase of a property are payable. These will vary depending on the individual circumstances.
This web site does not take into account your personal objectives, financial situation or particular needs. You should obtain a copy of the "Equity Finance Mortgage Disclosure Document" and the "Equity Finance Mortgage Terms and Conditions Booklet" and consider them before making a decision about whether to acquire an Equity Finance Mortgage. A copy of the "Equity Finance Mortgage Disclosure Document" and the "Equity Finance Mortgage Terms and Conditions Booklet" can be obtained by calling your lender.
All information is correct as at 01/02/2007 and is subject to change.
Fees, charges, terms, conditions and lending criteria apply. Full details are available on application. EFMs are arranged by Rismark International Funds Management Limited ABN 15 114 530 139. AFS licence number (293881) (trading as Rismark International). Permanent Custodians Limited ACN 001 426 384 is the lender.
ARES Capital Management Pty Limited's intellectual property relating to the EFM product is protected by Australian Innovation Patent No. 2005 100 871, 2005 100 869, 2005 100 868, 2005 100 867, 2005 100 865, and 2005 100 864.
® Equity Finance Mortgage (EFM) and EFM are registered trade marks of ARES Capital Management Pty Limited ABN 93 113 861 046.
TM Equity Finance Mortgage is a pending trade mark of ARES Capital Management Pty Limited ABN 93 113 861 046. |
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