Equity Finance Mortgage

With the way most users so far have torn apart the product (some without even reading about it first), it does not surprise me that the original poster would try and steer clear of the thread. I can see the original poster answering the questions and then having barrage more obscene questions thrown at him or having his answers scrutinised.
 
hi hobo-jo

well, that is the nature of a forum...if you post something, you've got to be able to back it up, and be prepared to be scrutinised.

If you can't back up what you're putting out there in the public area, and you're not prepared to be scrutinised and answer questions, then don't put anything out there.

it's that simple really.
 
That's true, but there has been too much scrutinising without users doing their own homework like reading the official site/fact sheets (is that too much to ask?). I have only seen well thought out posts from around half the users that have replied, the rest that have replied have been arguing about situations that aren't applicable (ie the 65k pool situation, which is covered on the official site under renovations) to posting large amounts of gibberish that even the best of us can't decipher.

And then when they have received an answer, like the ability to renovate, they tear it apart again. Giving situations that are unlikely to occur as the reason it won't work.

I have a situation where this product could work quite well for a investor, which I will post later tonight (off to work now), I will be interested to hear feedback on it.
 
Hi All

I think my post isnt related to Richard per se, nor as a defense of him, hes a big boy and doesnt need me to look out for him. He could/should answer what he can, when he can.

While there may be a line that has been crossed on terms of product promotion I dont see the start of this thread as SPAM per se for a number of reasons.

Richard at best has been a bit over enthusiastic with chucking the new product out there, which is available pretty much from most Adelaide Bank Mortgage Managers.

Im not going to say this is right or wrong, though the evidence is in the fact that the thread is stiil there, and its still there in the interests of information to the forum community.

My specific concern relates to some of what seems like a "hysteria" and "conspiracy" responses that seem to be flowing from this and other related threads............................I can see this forum degenerating to the same level as some other forums where almost anything is Ok

I for one do not like that at all.


ta
rolf
 
My specific concern relates to some of what seems like a "hysteria" and "conspiracy" responses that seem to be flowing from this and other related threads............................I can see this forum degenerating to the same level as some other forums where almost anything is Ok

I for one do not like that at all.


ta
rolf

Definitely agree with you on this point Rolf. In my view, if only Richard had been willing to front up and answer questions inthe first place, this thread would have been a fraction of the size it is now and probably would be in the archives as of now.

Mark
 
hi all
I must say that there are two types of posters.
the can you help me with this poster.
this poster I can accept that they do not know the product and they can post what ever for help and those we need and those I say post and keep posting.
then there is the veterin posters
that post look at this item or do you understand this and this group we don't have the same with restraint nor should we.
if you have say 600 posts under your belt they you don't get the same checking the info as say a 3 post person nor should you.
if you post at this level then.
I agree with mark say I do or I don't understand the product or post.
I (as most will know here ) do not back down very easily and I do stand by my posts and it is one of the things you learn to do.
 
Okay here is my scenario (mum and dad investors scenario), will try and keep it fairly open to avoid it being a niche group of people:

Bazza and Shazza are a defacto/married couple living in a home they bought 6 months ago for $240,000. The house they bought is relatively new and while it will need regular maintenance, they have no plans to renovate anything dramatically. They are both working full time (avg wages ie $45k each) with a 12 year old son (Dazza) who is about to start highschool.

They have saved up enough money for a deposit for another property and they are interested in going ahead with a second purchase if they can afford it. They see a broker/bank and ask about finance and they are happy to finance it. Bazza/Shazza look around for a property, but can only find negatively geared properties, which will be great for the tax benefits, however with Dazza starting in a private high school next year, they feel the extra $100 per week they will be out of pocket for the property will be too much with the extra expenses. They also don't want to reduce their lifestyle, they enjoy regular meals out as a family and don't want to change these luxuries. In steps the efm....

Their repayments are currently $1650 (approx?), they refinance their home with the efm, reducing their monthly payments on it to $1320. Giving them an extra $330 per month to contribute to an investment property with a cash flow situation that they feel comfortable with.

So they have can now afford an IP that they wouldn't have otherwise bought. So let's compare this situation over 10 years (assuming that they pay it out after 10 refinancing to a regular loan from then forwards), once with the EFM + extra property and once without the EFM without the extra property.

Without the efm:
PPOR Value: $240,000
10 years pass
PPOR Value: $480,000

Total CG into owners pocket: $240,000

With the efm:
PPOR Value: $240,000 (Regular Loan = $200,000, EFM = $40,000)
IP Value: $200,000
10 years pass
PPOR Value: $480k + $32k (interest saved from having EFM) - $96k (40% of CG to Rismark)
IP Value: $400k

Total CG into owners pocket: $366,000


What do you think....

Where are the flaws in the scenario...

I am genuinely asking, if I am missing something blatantly obvious please point it out.
 
Sounds pretty solid. Like many products the EFM can be beneficial and help people achieve their goals if it is used correctly and with discipline. Used incorrectly……

This product will be most useful, IMHO, if:
• You don’t intend to make renovations or improvements
• You have the discipline to use that ‘free’ 20% to build other investments instead of just buying a bigger house

However, there are also plenty of pitfalls. Given that this product is being touted in the media as helping ‘ordinary homeowners’, I think most people will fall into those pits. Your ordinary homeowner will get emotional about ‘their’ house and improve it.

One issue I see with your scenario is refinancing. When you refinance you would have to pay back the EFM. The investment decision in your example is partly based on having $40k that’s interest free. Normally one would just refinance if the PPOR goes up and buy more IPs. Using an EFM when you refinance you would have to pay out the $40k (and pay interest on the new loan that replaces it) AND pay the 40% CG.

The issue here is twofold: you have to pay an extra bit of interest that will affect your cashflow, AND you would have to pay the 40% CG from the refinancing proceeds (I wonder about the tax implications of that: will it be deductible?) Basically by using EFM you are borrowing more than you could before, and there is a cost to that.

It’s a double edged sword to use EFM so you can afford an IP. If the market goes up, great, your IP goes up, but your EFM 40% CG share is high too. When you refinance (and you will if you want to buy multiple IPs) you have to pay that out. In a crap market, your IP doesn’t move but your EFM doesn’t cost you as much, either.

Optimally, you want to do this by refinancing a PPOR in a dead market to EFM and use the ‘extra’ money to buy a high-growth property. I’m thinking 2003-2006 refinance a Sydney PPOR using EFM and buying in Perth. But heck, if I could time the market that well I would be on my own resort island. There is still the issue of refinancing later on to buy more IPs (you need to pay out the EFM CG share on refinance).

None of the above are necessarily show stoppers but something that would have to be calculated and considered carefully. This is something most buyers will not do.
Alex
 
Some good points. Hadn't thought about the 40% CG that is refinanced being an extra amount that would need interest paid on it.

I would say that a lot of people put little thought into the types of loans they take out, whether it be the EFM, a 100% loan or a revolving line of credit. Any product can work to a customers disadvantage if they don't A) Choose the right product for their situation and do their research and B) Manage the loan once they have it.
 
Some good points. Hadn't thought about the 40% CG that is refinanced being an extra amount that would need interest paid on it.

I would say that a lot of people put little thought into the types of loans they take out, whether it be the EFM, a 100% loan or a revolving line of credit. Any product can work to a customers disadvantage if they don't A) Choose the right product for their situation and do their research and B) Manage the loan once they have it.

If you use the EFM to buy an IP, you're pulling your future borrowing power to now. Great when the market goes up, of course (best if your IP goes up and the PPOR doesn't). However, when you refinance (as you no doubt will have to if you plan on buying more) the CG share means a bigger kick than if you'd used a normal loan. Normally, you refinance, get most of the capital gains in the form of extra money from the refinanced loan and you can buy an IP with it. With the EFM part of that disappears (though of course you saved interest in the meantime). Somethin that will have to be calculated carefully.

The financially stupid will always find a way to screw themselves. However, I think an EFM is more dangerous than a 100% LVR loan. A 100% LVR loan still has fixed payments. The biggest reservation I have about the EFM is that the payment (40% CG share) INCREASES with time. It ESPECIALLY increases if ordinary people do what they usually do with their homes (make renovations, improve them).

As with credit cards, 'interest free' deals, etc people make the biggest mistakes when they don't realise how much something will really cost them. Most people will just see the 'interest free 20%' portion and not care about what it's going to cost them in the long run. Taking this attitude with a few thousand in credit card debt is bad enough..... doing it with tens of thousands of dollars of EFM when the 40% CG share is calculated on something worth hundreds of thousands of dollars...........

I have an image of a beautiful ornament that people will want to put in their homes, but hidden inside is a bomb with a slow-burning fuse.
Alex
 
I think a lot of what people arguing against this product are basing their thoughts on, are that they know better about what people should be spending their money on.

If someone wants to maintain their current lifestyle and still be able to purchase a nice house, good on them, let them go.

I personally wouldn't touch this product, but that doesn't mean I'm going to rubbish it and tell everyone how to think and how to spend their money.

BR
 
I think a lot of what people arguing against this product are basing their thoughts on, are that they know better about what people should be spending their money on.

If someone wants to maintain their current lifestyle and still be able to purchase a nice house, good on them, let them go.

I personally wouldn't touch this product, but that doesn't mean I'm going to rubbish it and tell everyone how to think and how to spend their money.
Congratulations to Bantam Roosta. The first post to sum up the whole thread.
 
Well said Bantam Roosta.

This is a very specific niche product which has its place in the current lending climate; however; IMHO it is a typical product for todays society (can't wait, must have it all now).

I am sure that it will not have many followers, just like 95% LowDoc loans.

Just my 2 cents.
 
hi hobo-jo
I will try not to be a knocker here
but will try to give you some holes for me.
1 stamp duty on refinance
2.broker margins on refinance
3.you are relying on the ip to grow the same as the ppor and if that was the case then the property would normally be a neg ( as it hard to find a posi
and a posi with growth is even harder
and unless bazza and shazza are already investors thats not going to happen)
4.you have to take out the original efm part of the loan when refinancing
5.holding cost of both properties.
6. you can only lend 95% not 100% via efm and lmi must be included

know thats the easy part

heres the more difficult bit and this is where I could be told that I am a knocker.

you have dazza and shazza go looking for a loan for a house
and a broker has given them this loan.
what has the broker done.
he/she has mortgaged this borrower to the hilt with a 95% loan and then the borrower has gone out and mortgage to the hilt a 100% ip.
they have got the deposit for either or properties and you curently have a flat market
that no one (not even me and I polish my crystal ball each morning )can guess which way the market will move we all have views, but bazza and shazza don't
They just walked up to a casino table and threw 40k on black 21(black is up, red is down) with a the view the market was going up and the guy with the ball says oh and I'll give you the 40k and if you lose, you give me my 40k and you carry the debt.

for anyone if my view to take your bazza or shazza route would have to
A have more b-lls then me ( tell people what to spend on)
B. understand what they are doing and do the sums very very well and buy after huge research.( recommended but then they would research the product)
or C be very stupid.

and I hope dazza is going to uni to study
law( to sue the broker if her parents go under)
or accountancy to try to rearrange the finance if the market went back ward
because if it did go back heres the result
the market takes a 10% shift back

Without the efm:
PPOR Value: $216,000
80% 192k they take a shave but keep the house and struggle on



With the efm:
PPOR Value: $216,000 (Regular Loan = $200,000, EFM = $40,000)
IP Value: $160,000

PPOR Value: $216k - 40k =176 but the regular is still 200 =-24
IP Value: $160k loan 200 =-40k

dazza is looking to get 64k to help mum and dad with the assistance of her friendly bank liquidator ( and they are very friendly people)
and the one that brings you down in bazza case is not the ppor its the ip if the value drops to well over lvr the lender will what extra security and if rates move where is the buffer
bazza and shazza have no were to increase value or any form lending.
in the normal loan if you have the property in different state you can argue that one has gone up and one has gone down
so the 200 has gone down to 160 but the ppor has gone up and refinance the growth one to cover the fall in the ip ( not the best but it can save your bacon).
but in bazza and shazza they can't
if the market falls and you refinance there is no depreciation from the efm
if you go with another lender to gain money for the ip
and even if you could you can only get to 95% of value so the ppor would have to have gain 35% roughly to gain anything(perth) and the ip drop by 10%( sydney) if this was the case and bazza shazza used the efm buying the ppor in perth at start of the boom
and the ip in sydney at the start of the fall
say 2003

the normal loan I could save them they wouldn't like it but they keep the house and take a very deep hair cut.
the efm loan
I could not
the ip and the ppor would be gone.
and this is provided that as I have said in this post that the fund is still around and won't go down that path with hobo-jo example
as we need to look at hobo-jo example and keep it simple.
with your example
this person is geared to about 97%,
with no spare cash flow,
no buffer,
possible interest rate movement,
a dependant that is going to require funding.
and a couple that is looking for finance.

They see a broker/bank and ask about finance and they are happy to finance it

for me I don't wish to sound hard but the
They see a broker/bank and ask about finance and they are happy to finance it.

that person should be taken to the cleaners.

if you gave the above information in raw data, no one in there right mind would but bazza and shazza to 97% in this market.
bazza and shazza were looking for a house not an electric chair
please tell me I am wrong or am I missing something here.
your example hobo-jo is great as an example
because then we can see what people think
and thanks for putting it up
you can go to 97% lvr put you need a safety net because at those heights
you fall and its a long way down and and you hit alot of things on the way down and there is no net in the example and for me there can't be.
my .002
 
hi rolf
This is a very specific niche product which has its place in the current lending climate
tell me the niche market
with low or no doc there is reasons for it and you can say where there is a benefit for it and how people can use it.
please tell me how you can use this product and not lose money.
 
Gross,
the niche is for people who can't or will not save enough money for deposits but want to own a property immediately.

Rolf,

Do you see that as a good thing or a bad thing? Would you recommend this product based on that view? Because although I can't say for sure, but I think this is exactly what Richard is doing.

Mark
 
Gross,
the niche is for people who can't or will not save enough money for deposits but want to own a property immediately.

Sorry, but how do you figure? As I understand it the bank will lend to a maximum 75% standard loan, the EFM supplies a maximum 20%, so there is the 5% and fees that the borrower has to come up with.

If the borrower couldn't save a deposit, wouldn't it make more sense that would be after a 100% loan as opposed to this, which is essentially a 95% loan?
 
Mark,
No, I would normally not recommend that product - but then again they call me conservative.

When we wanted to purchase our first home we had to save for quite a few years (but that was back in the bad old days); so maybe I just a bit old fashioned.

:):):)
 
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