AMO Zero20 Home Load

[SuiCid3]

An Zero20 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. Here's how:

* An Zero20 allows you to borrow up to 20% of a property's value;
* There is no annual percentage rate applicable to an Zero20 loan, unless you are in default;
* You are not required to make any regular monthly interest repayments throughout the Zero20 loan, which you can hold for 25 years.

Instead, when you sell the property or repay the Zero20 for some other reason, you repay the Zero20 amount you originally borrowed plus up to a 40% share of any increase in the value of the property.

And while nobody likes to talk about property values decreasing, if this does happen when you have an Zero20 and you are selling your property, you may not have to repay the full Zero20 loan amount - a feature unique to an Zero20.

Specifically, if the value of your home falls, and you realise a capital loss when you sell your property, the Zero20 lender will share up to 20% of the realised losses on your property! 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 Zero20.

Came across this a few days ago...
From what I understand of this loan, you can use it as the deposit for a purchase, hence eliminating any LMI needed.
I'm not sure what the catches are if any, but if this paid off fairly quickly, that would help reduce the amount you would have to pay back.
Does anyone have any deeper understandings/experiences of this loan or similar loans?

Cheers,
David

 

[tubs]

I should have thought the catch was pretty obvious.

They put in 20% in exchange for a fairly high return of their money.

eg Buy a $400k house. They chip in $80k.

When it doubles, you sell it.

You pay them back their $80k, plus 40% of the $400k it has grown by (ie $160k).

So, they put in $80k, and get $240k (triple their money). This is a profit of $160k.

You walk away with $160k as well.

You work out who gets the better deal. You both win I guess, but if you did it yourself, you'd walk away with the full $400k. Not sure its a sacrifice I'd want to make to save on some MI.

 

[SuiCid3]

Yep, that part is fairly obvious..
But lets assume we can pay the loan off within the first few months, or even within the first year of the loan. Assuming this can be done without any penalties, and if there wasn't much capital gain on the property, it sounds like a decent strategy off having the 20% on hand.

Edit: Actually, after some calculations, this sounds like it's worse than a personal loan the property has a positive gain.
I guess it would do well to gain some funds on some property that aren't performing very well.

 

[Aimjoy]

I guess it would do well to gain some funds on some property that aren't performing very well.

You can't be serious surely?

 

[SuiCid3]

You can't be serious surely?

Care to explain?

My line of thoughts were this:
Basing this on a long term CG strategy.
If you were to purchase property where prices were flat, and stayed flat for the short term, you could pay off the loan without attracting the 40% commission, hence paying no more than the 20% you originally borrowed. If prices under performed during the time you pay off the loan, you wouldn't have to pay the full 20%.
Eventually in the long term, some form of capital gains would be expected.

Yes? No?

 

[Glucose]

This sounds very interesting to me, but one question - how can you be in default if you are not required to make any loan repayments on this?

 

[bailz66]

It says you pay it back when you sell... Why would you sell then?

I guess it has a 25 year limit, maybe it would be ok for peoples PPOR when they cant save for a deposit

 

[Glucose]

David,
Where did you find this information? I can't find anything by AMO or any other refs on this forum to Zero20. Nothing came up on Google either. Who does these loans? Can you give us some more information? Please!

 

[SuiCid3]

http://www.amohomeloans.com.au/zero20/index.html

It's under AMO Products. 2nd link on the list.

 

[Glucose]

Thanks SuiCid3. It makes for very interesting reading. Looks like you have to get your traditional loan through them as well as the Zero20. I think it would be ideal to get yourself into a higher value PPOR than you could otherwise afford now, instead of waiting till you'd saved the 20% or refinanced an IP. I'm going to look into it further.
One thing I just thought of - if you finance an IP this way and sell it for, say $100000 profit in a few years, you pay them back their 20% of the original price, plus $40000, yes? Then what amount are you liable for CGT on? The $100k or $60K??

 

[SuiCid3]

I would assume only on the $60k (as the $40k would be considered the 'interest')*

It's an interesting concept that AMO have, but I have been able to come across all the information on their website.
I'm sure there are some scenarios where this type of product will allow you to come up on top.




*This is based on my assumptions and not 100% fact.

 

[Token Funder]

Hi,

New to the the forum but familiar with the product.

Major issue for investors is that this product is for PPOR only. It does provide some opportunities for the PI in that you could refinance existing PPOR debt into the AMO product (BTW, it's generically described as an Equity Finance Mortgage) which will reduce your monthly repayments (you don't make any on the 20%, only your remaining debt) and use the freed up cash to create servicing for additional IPs.

 

[luce.rocks]

there are a few older threads on shared equity mortgages if anyone wants to have a search

 

[SuiCid3]

Hi,

New to the the forum but familiar with the product.

Major issue for investors is that this product is for PPOR only. It does provide some opportunities for the PI in that you could refinance existing PPOR debt into the AMO product (BTW, it's generically described as an Equity Finance Mortgage) which will reduce your monthly repayments (you don't make any on the 20%, only your remaining debt) and use the freed up cash to create servicing for additional IPs.

Hi Token Funder,

Have you had personal experience with this particular loan?

David