Derivex - interest free loans?
- Thread starter Lissy
- Start date
But then the FAQ says something like this
22) How are interest free home loans structured?
Interest free home loans are designed to direct 100% of all home loan equity and all property capital gains to the borrower with minimal risk. The loan underwriter does not share in either the capital loan account accrued or property capital gains accrued. The underwriter generates their profit from AAA rated cash backed "residual income" securities.
22) How are interest free home loans structured?
Interest free home loans are designed to direct 100% of all home loan equity and all property capital gains to the borrower with minimal risk. The loan underwriter does not share in either the capital loan account accrued or property capital gains accrued. The underwriter generates their profit from AAA rated cash backed "residual income" securities.
The following is from the FAQs section of the website. Not sure whether the first para means you pay the 5% when the loan is approved, or when it's settled.
"The refundable loan conduit fee is a 5% of initial loan amount, single, up front fee, payable once only upon acceptance of the Loan Offer and is settled on the loan funding account to establish your loan conduit.
The conduit reserve is required to cover any loan default event on the part of the borrower. It is repayable in full when the home loan is paid out less any default charge that you may have had applied against it.
Before proceeding with a loan application for any loan product offering detailed herein, please take some time to carefully read our legal and disclaimer pages. Please consult your legal or accounting advisors if you need help or assistance in assessing any product offering herein."
"The refundable loan conduit fee is a 5% of initial loan amount, single, up front fee, payable once only upon acceptance of the Loan Offer and is settled on the loan funding account to establish your loan conduit.
The conduit reserve is required to cover any loan default event on the part of the borrower. It is repayable in full when the home loan is paid out less any default charge that you may have had applied against it.
Before proceeding with a loan application for any loan product offering detailed herein, please take some time to carefully read our legal and disclaimer pages. Please consult your legal or accounting advisors if you need help or assistance in assessing any product offering herein."
Maybe the scam is the initial application fee. Get 20 people to apply per week at $475 per (non refundable) = $9500 pw or nearly 1/2 mill per year. All of them result in a 'sorry you do not qualify' take the money and run.
Basically for a PPOR an interest free loan makes sense but for an investment loan it really doesn't work. The concept of an investment property is that you are not paying of the capital as this will cost double in pre tax $ terms, so you simply pay the interest and this is all claimable.
In the case normal interest only loan at 7% with return of 5%. Income is $13000, cost is $21000, loss $8000, this cost in pre tax dollars.
In the case of an interest free loan cost of money 0% tax on rent 48% but need to pay back capital at say $1250 pm ($300k over 20 years) non deductable. Rent on a $300k prop is say $250pw or $1083 pm.
So Income $13000, tax on income $7500
payments $15000 less the $7500, leaves $7500 from other income, or having to earn $15k of pre tax dollars.
The difference is at the end the property is payed down but in current dollars instead of inflated future dollars. Your pay back when selling is in inflated future dollars.
Thus to get an interest free loan that needs regular, even, capital payments, you will need to earn at least double the cost of the capital payments to break even. On a 20 year interest free loan you will need to earn a minimum of 10% to break even. On a 10 year loan you need to make 20%.
I look forward to further thoughts
Cheers
Basically for a PPOR an interest free loan makes sense but for an investment loan it really doesn't work. The concept of an investment property is that you are not paying of the capital as this will cost double in pre tax $ terms, so you simply pay the interest and this is all claimable.
In the case normal interest only loan at 7% with return of 5%. Income is $13000, cost is $21000, loss $8000, this cost in pre tax dollars.
In the case of an interest free loan cost of money 0% tax on rent 48% but need to pay back capital at say $1250 pm ($300k over 20 years) non deductable. Rent on a $300k prop is say $250pw or $1083 pm.
So Income $13000, tax on income $7500
payments $15000 less the $7500, leaves $7500 from other income, or having to earn $15k of pre tax dollars.
The difference is at the end the property is payed down but in current dollars instead of inflated future dollars. Your pay back when selling is in inflated future dollars.
Thus to get an interest free loan that needs regular, even, capital payments, you will need to earn at least double the cost of the capital payments to break even. On a 20 year interest free loan you will need to earn a minimum of 10% to break even. On a 10 year loan you need to make 20%.
I look forward to further thoughts
Cheers
Hi,
It does look interesting, one thing I was wondering, the 5% fee would still be less than 1yrs worth of interest. If a fee then would this not be tax deductable (for IPs). And if such it would be like pre-paying interest at the end of a financial year. Would be a nice thought to time it in so that it is paid at the end of a financial year.
There was a another system I heard of a few years back that worked on a communal low interest or no interest loan, however the system operated on the idea that you were put into a queue and paid an annual fee.
Michael
It does look interesting, one thing I was wondering, the 5% fee would still be less than 1yrs worth of interest. If a fee then would this not be tax deductable (for IPs). And if such it would be like pre-paying interest at the end of a financial year. Would be a nice thought to time it in so that it is paid at the end of a financial year.
There was a another system I heard of a few years back that worked on a communal low interest or no interest loan, however the system operated on the idea that you were put into a queue and paid an annual fee.
Michael
www.derivex.com.au
Neotrace resolves that to:
IP Address: 65.38.167.189
Location: Denver (39.739N, 104.983W)
Network: HUGEHOSTING
Registrant: Digitalis Web Solutions
Registrant ID: ABN 81 612 469 841
Registrant: Digitalis Web Solutions
Registrant ID: ABN 81 612 469 841
Registrant ROID: C1433361-AR
Registrant Contact Name: Mr Denis Kukic
Registrant Email: [email protected]
Tech ID: C1135401-AR
Tech Name: Digitalis Administrator
Tech Email: [email protected]
Name Server: ns1.digitalis.net.au
Name Server IP: 205.214.89.56
Name Server: ns2.digitalis.net.au
Name Server IP: 205.214.89.63
Name Server: ns18.zoneedit.com
Name Server: ns8.zoneedit.com
Samspade trace;
Server Used: [ whois.arin.net ]
65.38.167.189 = [ koala.digitalis.net.au ]
OrgName: Huge Hosting LLC
OrgID: HHL-12
Address: 1822 Blake Street Suite C
City: Denver
StateProv: CO
PostalCode: 80202
Country: US
NetRange: 65.38.160.0 - 65.38.191.255
CIDR: 65.38.160.0/19
NetName: HUGEHOSTING
NetHandle: NET-65-38-160-0-1
Parent: NET-65-0-0-0-0
NetType: Direct Allocation
NameServer: NS1.HUGEHOSTING.COM
NameServer: NS2.HUGEHOSTING.COM
Comment:
RegDate: 2003-08-26
Updated: 2004-06-07
TechHandle: CWG-ARIN
TechName: Gross Chris Wayne
TechPhone: 1-303-268-1500
TechEmail: [email protected]
OrgTechHandle: CWG-ARIN
OrgTechName: Gross Chris Wayne
OrgTechPhone: 1-303-268-1500
OrgTechEmail: [email protected]
ARIN WHOIS database last updated 2004-11-21 19: 10
Enter ? for additional hints on searching ARIN's WHOIS database.
Extracted from ASIC's database at 20:23:57 on 22/11/2004
Name DERIVEX LIMITED
ACN
105 118 401
ABN
36 105 118 401
Type Australian Public Company, Limited By Shares
Registration Date 16/06/2003
Next Review Date 16/06/2005
Status Registered
Locality of Registered Office Balmoral NSW 2088
Jurisdiction Australian Securities & Investments Commission
These are the documents that ASIC has most recently received from this organisation. Page numbers are shown if processing is complete and the document is available for purchase.
Date Number Pages Description
21/06/2004 020436150 12 484 Change to Company Details Change of Registered Address
484C Change of Principal Place of Business (Address)
484E Appointment or Cessation of a Company Officeholder
16/06/2003 0E8862317 3 201A Application For Registration as a Public Company
16/06/2003 019168754 29 218 Constitution of Company
I would steer clear of this, server is in US at Denver and person who registered it is Mr Denis Kukic, this is who I would be checking out. Sounds very much like a advance fee scam to me but they do say the 5% is payable after acceptance. Just one link there are hundreds online. http://www.ftc.gov/bcp/conline/edcams/advfee/
Neotrace resolves that to:
IP Address: 65.38.167.189
Location: Denver (39.739N, 104.983W)
Network: HUGEHOSTING
Registrant: Digitalis Web Solutions
Registrant ID: ABN 81 612 469 841
Registrant: Digitalis Web Solutions
Registrant ID: ABN 81 612 469 841
Registrant ROID: C1433361-AR
Registrant Contact Name: Mr Denis Kukic
Registrant Email: [email protected]
Tech ID: C1135401-AR
Tech Name: Digitalis Administrator
Tech Email: [email protected]
Name Server: ns1.digitalis.net.au
Name Server IP: 205.214.89.56
Name Server: ns2.digitalis.net.au
Name Server IP: 205.214.89.63
Name Server: ns18.zoneedit.com
Name Server: ns8.zoneedit.com
Samspade trace;
Server Used: [ whois.arin.net ]
65.38.167.189 = [ koala.digitalis.net.au ]
OrgName: Huge Hosting LLC
OrgID: HHL-12
Address: 1822 Blake Street Suite C
City: Denver
StateProv: CO
PostalCode: 80202
Country: US
NetRange: 65.38.160.0 - 65.38.191.255
CIDR: 65.38.160.0/19
NetName: HUGEHOSTING
NetHandle: NET-65-38-160-0-1
Parent: NET-65-0-0-0-0
NetType: Direct Allocation
NameServer: NS1.HUGEHOSTING.COM
NameServer: NS2.HUGEHOSTING.COM
Comment:
RegDate: 2003-08-26
Updated: 2004-06-07
TechHandle: CWG-ARIN
TechName: Gross Chris Wayne
TechPhone: 1-303-268-1500
TechEmail: [email protected]
OrgTechHandle: CWG-ARIN
OrgTechName: Gross Chris Wayne
OrgTechPhone: 1-303-268-1500
OrgTechEmail: [email protected]
ARIN WHOIS database last updated 2004-11-21 19: 10
Enter ? for additional hints on searching ARIN's WHOIS database.
Extracted from ASIC's database at 20:23:57 on 22/11/2004
Name DERIVEX LIMITED
ACN
105 118 401
ABN
36 105 118 401
Type Australian Public Company, Limited By Shares
Registration Date 16/06/2003
Next Review Date 16/06/2005
Status Registered
Locality of Registered Office Balmoral NSW 2088
Jurisdiction Australian Securities & Investments Commission
These are the documents that ASIC has most recently received from this organisation. Page numbers are shown if processing is complete and the document is available for purchase.
Date Number Pages Description
21/06/2004 020436150 12 484 Change to Company Details Change of Registered Address
484C Change of Principal Place of Business (Address)
484E Appointment or Cessation of a Company Officeholder
16/06/2003 0E8862317 3 201A Application For Registration as a Public Company
16/06/2003 019168754 29 218 Constitution of Company
I would steer clear of this, server is in US at Denver and person who registered it is Mr Denis Kukic, this is who I would be checking out. Sounds very much like a advance fee scam to me but they do say the 5% is payable after acceptance. Just one link there are hundreds online. http://www.ftc.gov/bcp/conline/edcams/advfee/
Last edited:
Excerpt from the cached page on the google search above.
BTW I still don't understand how it works
"A Simple Solution
Derivex contributes 25% of the property's valuation and funds ongoing interest and property costs in exchange for a secured residual claim.
The lack of credit default risk enables anyone to purchase property who is able to fund the one time payment and from that time forward the underlying property asset is internally funded by pool returns.
Benefits
The funding mechanism allows borrowers to pay zero rates of interest today in exchange for a fixed claim over future income and capital.
25% - Net Residual Capital Value
75% - Net Residual Income Value
Homeowners enjoy dramatic retention of real net disposable income.
In the comparison below the conventionally financed home purchaser will outlay $36,000 pa, ie; more in each and every year for up to 25 years than the equity finance homeowner's one time upfont payment.
The upfront and ongoing cost of property ownership plus loan interest payments decline by around 95%. There is also dramatic reduction in default risk and a dramatic increase in the rate of net overall return.
Derivex finance supports ten times the rate of return normally realised by way of a direct real estate investment and eliminates the risks we associate with counterparties, asset price declines and interest rates.
Simple
Transparent
Risk-adjusted
Single payment
Accelerated growth
Fixed rate long term funding
Highly liquid direct property investment
Independent of local interest rates and taxation
Derivex financing provides a risk-adjusted conduit between borrowers and local cash markets eliminating a host of middlemen and costs.
Funding Support
A residual funding pool underwrites underlying support costs in rising and falling property and bond markets and accelerates loan paydown.
ongoing property loan interest cost
upfront and ongoing stamp duty costs
upfront and ongoing property related costs
A conventionally financed property investment simply cannot match conduit financing returns and exposes the investor to substantial risk"
BTW I still don't understand how it works
"A Simple Solution
Derivex contributes 25% of the property's valuation and funds ongoing interest and property costs in exchange for a secured residual claim.
The lack of credit default risk enables anyone to purchase property who is able to fund the one time payment and from that time forward the underlying property asset is internally funded by pool returns.
Benefits
The funding mechanism allows borrowers to pay zero rates of interest today in exchange for a fixed claim over future income and capital.
25% - Net Residual Capital Value
75% - Net Residual Income Value
Homeowners enjoy dramatic retention of real net disposable income.
In the comparison below the conventionally financed home purchaser will outlay $36,000 pa, ie; more in each and every year for up to 25 years than the equity finance homeowner's one time upfont payment.
The upfront and ongoing cost of property ownership plus loan interest payments decline by around 95%. There is also dramatic reduction in default risk and a dramatic increase in the rate of net overall return.
Derivex finance supports ten times the rate of return normally realised by way of a direct real estate investment and eliminates the risks we associate with counterparties, asset price declines and interest rates.
Simple
Transparent
Risk-adjusted
Single payment
Accelerated growth
Fixed rate long term funding
Highly liquid direct property investment
Independent of local interest rates and taxation
Derivex financing provides a risk-adjusted conduit between borrowers and local cash markets eliminating a host of middlemen and costs.
Funding Support
A residual funding pool underwrites underlying support costs in rising and falling property and bond markets and accelerates loan paydown.
ongoing property loan interest cost
upfront and ongoing stamp duty costs
upfront and ongoing property related costs
A conventionally financed property investment simply cannot match conduit financing returns and exposes the investor to substantial risk"
Hi,
I zapped off a couple of questions yesterday to them and got a response
about 2 hours later. I have posted the e-mail below, obviously the answers
are at the top and Q's at the bottom
Norman
************************************
Norman
Thank you for your enquiry
1. The conduit reserve of 5% is held on AAA rated deposit
2. Loan is owned by Derivex Asset Management Limited.
3. The loan is capitalised as a residual income security and is not securitised as an MBS or ABS security
4. Loan Terms and Conditions are specified under contract for the term of the loan
The base loan we underwrite is $125,000 - as is specified in http://www.derivex.com.au/offerings/home_loan_features.htm
Best Regards
Trevor Cohen
CEO
Derivex Limited
Direct Line: +61 2 9960 6171
Local Mobile: 0402 215 793
Email: [email protected]
*********************************************************************************
This e-mail message (along with any attachments) is intended only for the named addressee and could contain
information that is both confidential or privileged. If you are not the intended recipient you are notified that any
dissemination, copying or use of any of the information is prohibited. Please notify us immediately by return
email to [email protected] if you are not the intended recipient and delete all copies of the original
message and attachments.
*********************************************************************************
----- Original Message -----
From: Hoy, Norman - Adelaide
To: '[email protected]'
Sent: Monday, November 22, 2004 12:08 PM
Subject: loan
hi
I have read your pages on the web and seen the appliction form but
it does not seem to give me enough information.
I have a number of properties and am happy to try you for one
to see what happens but will need some information first. Also
as you explain I need to speak to my accountant and lawyer and
will do but need to know some things.
1) how is the 5% held? or is it invested and what guarantees
it is still there and not lost on investments somewhere?
2) who owns the loan? and would it be on sold? to some other
body, related to you or not?
3) what recall is there? ie if we set up a loan for $100,000
for 10 years then the conditions can't be altered nor the
loan called in.
I have a property I am about to settle on (only 100,000) and
it will be in the trust. Any borrowings would be in my name
and there will be as I would also borrow the 5%. I on lend
that money to the trust in exchange for income units, while
the trust offers up the property as security.
The trust is a Hybrid Discretionary Trust. In many ways like a
normal Discretionary/family trust but with the ability to
also issue/sell units. This mechanism allow me to get the
deduction while the trust is getting the property.
thanks
Norman
I zapped off a couple of questions yesterday to them and got a response
about 2 hours later. I have posted the e-mail below, obviously the answers
are at the top and Q's at the bottom
Norman
************************************
Norman
Thank you for your enquiry
1. The conduit reserve of 5% is held on AAA rated deposit
2. Loan is owned by Derivex Asset Management Limited.
3. The loan is capitalised as a residual income security and is not securitised as an MBS or ABS security
4. Loan Terms and Conditions are specified under contract for the term of the loan
The base loan we underwrite is $125,000 - as is specified in http://www.derivex.com.au/offerings/home_loan_features.htm
Best Regards
Trevor Cohen
CEO
Derivex Limited
Direct Line: +61 2 9960 6171
Local Mobile: 0402 215 793
Email: [email protected]
*********************************************************************************
This e-mail message (along with any attachments) is intended only for the named addressee and could contain
information that is both confidential or privileged. If you are not the intended recipient you are notified that any
dissemination, copying or use of any of the information is prohibited. Please notify us immediately by return
email to [email protected] if you are not the intended recipient and delete all copies of the original
message and attachments.
*********************************************************************************
----- Original Message -----
From: Hoy, Norman - Adelaide
To: '[email protected]'
Sent: Monday, November 22, 2004 12:08 PM
Subject: loan
hi
I have read your pages on the web and seen the appliction form but
it does not seem to give me enough information.
I have a number of properties and am happy to try you for one
to see what happens but will need some information first. Also
as you explain I need to speak to my accountant and lawyer and
will do but need to know some things.
1) how is the 5% held? or is it invested and what guarantees
it is still there and not lost on investments somewhere?
2) who owns the loan? and would it be on sold? to some other
body, related to you or not?
3) what recall is there? ie if we set up a loan for $100,000
for 10 years then the conditions can't be altered nor the
loan called in.
I have a property I am about to settle on (only 100,000) and
it will be in the trust. Any borrowings would be in my name
and there will be as I would also borrow the 5%. I on lend
that money to the trust in exchange for income units, while
the trust offers up the property as security.
The trust is a Hybrid Discretionary Trust. In many ways like a
normal Discretionary/family trust but with the ability to
also issue/sell units. This mechanism allow me to get the
deduction while the trust is getting the property.
thanks
Norman
Ajax
Perhaps the Australian version works in a different way? The following is from the FAQs section of the Australian website.
22) How are interest free home loans structured?
Interest free home loans are designed to direct 100% of all home loan equity and all property capital gains to the borrower with minimal risk. The loan underwriter does not share in either the capital loan account accrued or property capital gains accrued. The underwriter generates their profit from AAA rated cash backed "residual income" securities.
Perhaps the Australian version works in a different way? The following is from the FAQs section of the Australian website.
22) How are interest free home loans structured?
Interest free home loans are designed to direct 100% of all home loan equity and all property capital gains to the borrower with minimal risk. The loan underwriter does not share in either the capital loan account accrued or property capital gains accrued. The underwriter generates their profit from AAA rated cash backed "residual income" securities.
Hi Michael.michaelg said:
Was wondering the same thing. Only problem I see with claiming the 5% conduit fee as a deduction would be at the end of the loan when the fee is (supposedly) refunded back to you. It means youve claimed for something then had a refund. Don't think the ATO would look kindly on this.
Regards
Marty
kissfan said:
I don't see that as a problem, you are claiming the "cost of doing business" as the deduction, which is the interest costs for a sum of money that you have had to borrow to secure a loan that has been used to generate an income. This should be regardless of whether or not the money is returned at a later date as until it is returned you have had holding costs.
Norman
PS I am not a tax lawyer
I stand corrected. Was hoping I was wrong, lol.NormH said:I don't see that as a problem, you are claiming the "cost of doing business" as the deduction, which is the interest costs for a sum of money that you have had to borrow to secure a loan that has been used to generate an income. This should be regardless of whether or not the money is returned at a later date as until it is returned you have had holding costs.
Norman
PS I am not a tax lawyer
Cheers
Marty
Hi,
I have just received a brochure from Derivex that gives some information, about how it works. It is going to be on the website today I believe. I have submitted a finance quiry but in comments have stated that no monies will be forthcoming until my lawyer and accountant have looked at the fine print and T&C's. So Dale you can expect a call/mail from me once I get this
I see this as good, the "holding costs" are low, make a property cashflow
positive from day 1 and I can buy more
That is why I am following up on this, I think paying tax is a good thing cos that means I am actually earning money. I know "HandyAndy" put up a post about how much growth I gotta have but I view this quite simply, it is a means of reducing my costs thus makes it easier/faster to build equity, in particular if I refinance my "income rather than capital" properties hence getting more equity faster.
Norman
I have just received a brochure from Derivex that gives some information, about how it works. It is going to be on the website today I believe. I have submitted a finance quiry but in comments have stated that no monies will be forthcoming until my lawyer and accountant have looked at the fine print and T&C's. So Dale you can expect a call/mail from me once I get this
I see this as good, the "holding costs" are low, make a property cashflow
positive from day 1 and I can buy more
That is why I am following up on this, I think paying tax is a good thing cos that means I am actually earning money. I know "HandyAndy" put up a post about how much growth I gotta have but I view this quite simply, it is a means of reducing my costs thus makes it easier/faster to build equity, in particular if I refinance my "income rather than capital" properties hence getting more equity faster.
Norman
I have reviewed the Executive Summary - InterestFreeFunding.pdf.
It still does not make sense to me. Where do they earn their money
? How do the people who lend the money to Derivex earn their money? I hope this is not a pyramid type scheme where new business underwrites the older loans.
It still does not make sense to me. Where do they earn their money
? How do the people who lend the money to Derivex earn their money? I hope this is not a pyramid type scheme where new business underwrites the older loans.
I'm with Toony,
what is this residual income stream they are talking about?
How does this 5% conduit fee work? How does Derivex earn its income?
I used to sit in law lectures where one person would regularly ask the lecturer "Maybe I'm not as clever as everyone else, but I simply don't understand the concept. Can you please explain it in a different way? She ended up partner in a large Sydney law firm. Will always respect her for asking questions where the rest of the class also didn't understand.
Ajax
what is this residual income stream they are talking about?
How does this 5% conduit fee work? How does Derivex earn its income?
I used to sit in law lectures where one person would regularly ask the lecturer "Maybe I'm not as clever as everyone else, but I simply don't understand the concept. Can you please explain it in a different way? She ended up partner in a large Sydney law firm. Will always respect her for asking questions where the rest of the class also didn't understand.
Ajax
Hi folks,
I don't know and am not confessing to know how they get their income. I have just passed on the information that I have managed to get so far. Also it is only a "sales brochure" from my perspective and I will not be signing on to anything until the terms of the contract have been read and understood. Beyond that I am not too concerned.
Why? well I don't ask banks or mortgage brokers how they get all their income, although I understand in simple terms where most of their income comes from there are other streams that I am sure I am unaware of.
When I first saw their name "www.derivex.com.au" my immediate thought was they were playing in the derivitives market and possibly high risk options.
They may still be but this is the way that I view it, the 5% refundable in 20years is todays dollars in the future so really only worth 1.25% in todays dollars (assuming your money halves in value very 10years [a rule of thumb that I use]). So if I have borrowed $200,000 then I have at risk $10,000 in 20 years time. The reason I want to look at the contract is to ensure there is no way at some time in the future the loan can be called in early if I have not defaulted, there is no way an interest rate can be applied under any circumstance to the loan and to ensure the interest payable on the "conduit" is in some way related to the RBA/major bank variable rate.
If those conditions are satisfied then I see no risk to me or my property/loan as it is all then in my control regardless of if the financier goes bust in the future.
As I go through the process, and as I discover more information, I am happy to post and keep people informed, view me as the guinea pig if you like. It just so happens that I am right at that point of needing to finance a property and it is only for $125,000 so a great way to test them. Also it will be me getting the loan in my name to then purchase income units in the HDT, which will offer the property as security, I suspect this is the very scenario that many people here will be interested in. I will confess that this purchase is under market valuation so I won't need to xcoll in anyway, however part of the borrowing will go to satisfy the 5% 'conduit' and more will go to finance some improvements and pay costs. The base value of the property is $100,000 but I believe valuation after the small spend will put it near $130,000.
I suspect to understand what they are doing, for the brochure that I have already posted, and further information as I get it, we will need someone who is familiar with raising capital and financing via the equities/futures markets to explain in terms that I and probably many others on this forum will understand.
But don't forget, on the 5% if I am paying 6% interest to them and they are holding it, they can on lend it at say 6% in the short-term markets, and they also have the "value" of my property that they can "lend" as security to someone at a value of x% it would not take too much to get to a point where is all becomes self-funding. Just my laymans thoughts.
Norman
I don't know and am not confessing to know how they get their income. I have just passed on the information that I have managed to get so far. Also it is only a "sales brochure" from my perspective and I will not be signing on to anything until the terms of the contract have been read and understood. Beyond that I am not too concerned.
Why? well I don't ask banks or mortgage brokers how they get all their income, although I understand in simple terms where most of their income comes from there are other streams that I am sure I am unaware of.
When I first saw their name "www.derivex.com.au" my immediate thought was they were playing in the derivitives market and possibly high risk options.
They may still be but this is the way that I view it, the 5% refundable in 20years is todays dollars in the future so really only worth 1.25% in todays dollars (assuming your money halves in value very 10years [a rule of thumb that I use]). So if I have borrowed $200,000 then I have at risk $10,000 in 20 years time. The reason I want to look at the contract is to ensure there is no way at some time in the future the loan can be called in early if I have not defaulted, there is no way an interest rate can be applied under any circumstance to the loan and to ensure the interest payable on the "conduit" is in some way related to the RBA/major bank variable rate.
If those conditions are satisfied then I see no risk to me or my property/loan as it is all then in my control regardless of if the financier goes bust in the future.
As I go through the process, and as I discover more information, I am happy to post and keep people informed, view me as the guinea pig if you like. It just so happens that I am right at that point of needing to finance a property and it is only for $125,000 so a great way to test them. Also it will be me getting the loan in my name to then purchase income units in the HDT, which will offer the property as security, I suspect this is the very scenario that many people here will be interested in. I will confess that this purchase is under market valuation so I won't need to xcoll in anyway, however part of the borrowing will go to satisfy the 5% 'conduit' and more will go to finance some improvements and pay costs. The base value of the property is $100,000 but I believe valuation after the small spend will put it near $130,000.
I suspect to understand what they are doing, for the brochure that I have already posted, and further information as I get it, we will need someone who is familiar with raising capital and financing via the equities/futures markets to explain in terms that I and probably many others on this forum will understand.
But don't forget, on the 5% if I am paying 6% interest to them and they are holding it, they can on lend it at say 6% in the short-term markets, and they also have the "value" of my property that they can "lend" as security to someone at a value of x% it would not take too much to get to a point where is all becomes self-funding. Just my laymans thoughts.
Norman
