Hi Tony,
It's fine if you compare two properties of the same value, but in an earlier post you said this:
'You get to afford a home that you might not otherwise be able to if you didn't use the loan'
So in an example based on the above statement you would need to use an example of a property that you can afford right now and one you could buy with the loan. How many people are going to use the loan to buy a property that they could afford now - and why would you use this to buy a property you can afford with your current capacity? Put it this way - why would you sacrifice 40% of the gain when you can pay 7.5% in interest?
The only reason I'd see anyone using this is to buy something they can't afford with their current capacity. So let's do an example using the above logic.
I'm gonna use different figures to yours for ease of example, the principle remains the same regardless of numbers. Actually, I would say the figures get a lot worse the higher the loan.
Able to afford a property now at $200,000
Able to purchase with EFM loan at $250,000
Now if your capacity is $200,000 that means you're making roughly $40,000 per annum (this can be substituted for whatever your capacity is). On current tax rates, that means you're taking home about $31,540 p.a. or $2,628 a month. The calcs include Medicare of 1.5%.
So... you have a $200,000 loan, paying let's say 7.5% I/O (I know with the EFM loan it's P&I, no exceptions - yet another reason why it's crap) but let's keep things simple. So repayments on that are $15,000 a year or $1,250 a month (remember it's higher for P&I).
You say you're going to pay off the 20% + 40% CG in two years. Okay, let's look at how realistic this actually is. So after you're paying back the loan (remember that with the EFM loan it's actually higher cause you don't have the option of paying I/O) you have $1,378 per month in disposable income.
You want to pay back the 20% ($50,000 + 40% of CG) in two years. Two years of CG on a $250,000 property at 7% (the national average) = $36,225. 40% of gain = $14,490. So the total amount you need to pay back in two years = $64,490 (this is $32,245 per year - more than our example person takes home). That's $2,687 per month over 24 months you would need to save.
Keeping in mind that you have just over half that in disposable income each month - and that disposable income was calculated on an I/O loan, when in actual fact you are paying a P&I loan so it's even less - and you need to pay for food, clothing, utilities, etc etc. Where is the money coming from in that two years?
If you refinance, you do realise that you will be paying interest on money that you will never see again, and you're okay with that? This strategy also assumes you have the capacity to refinance.
I know you said you can save about $20,000 p.a. - that's about $1,666 per month after tax. Is this realistic? If so, you could EASILY afford a $365,500 loan if you can save this much AFTER making payments on your P&I loan and general living expenses. Based on that (assuming you can actually save that much) you're still not going to even have been able to pay back 2/3 of the loan on a $250,000 loan, let alone $365,500!
Mate, you really need to take a serious look at your calculations and your estimates of how much you can save, because I think your expectations are hideously unrealistic. If Richard has gotten you a loan based on what you've stated in your post, I'd be really pretty seriously concerned right about now.
Mark