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Shared Equity Loans
The latest Lending product is the shared equity finance mortgage (EFM) which allows borrowers to buy property which they traditionally could not afford.
And while the deal seems immensely attractive to aspiring homeowners desperate to get their own little piece of Australia, it comes with warnings that borrowers may not get the return for their investment that those with traditional mortgages will.
The deal is that the borrower can borrow 20 per cent of the property's purchase price interest-free and in return the lender gets 40 per cent of any capital gain made when the property is sold or the borrower finalises the loan.
The EFM is taken in conjunction with a standard mortgage and while borrowers pay interest on this loan, there is no interest or monthly repayments on the EFM part of the loan.
The products offer the combination of a better lifestyle and a cheaper loan upfront but in the long term the loan can cost more.
The EFM part of the loan has the common 25-year term but with no principal monthly repayments required until the loan is repaid by the borrower.
Yet when used in conjunction with a traditional home loan, the EFM can be repaid in full by the borrower at any time.
If the value of the home increases, the borrower has to give the bank 40 per cent of any capital gain made when the loan is repaid. If the value of the home decreases, the borrower will have to pay 20 per cent of the capital loss.
You would need to consider if this is the type of loan for you so talk to your local Refund Home Loans Broker to review your options.
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