Equity Finance Mortgage

[Mr. Fabulous]

Oh man! I didn't even think about the FHOG and stamps! Thanks for that grossreal. Also Tony I would just like to ask you this - did Richard explain to you that when you want to purchase an I.P. further down the track that it's going to shoot your capacity all to hell because the lender is going to see you have a loan for $X even though you're only paying $Y?

As already stated, this is a very short sighted loan and it's going to hurt a lot of people. Tony I sincerely hope you haven't signed for one of these loans yet.

Mark

 

[Mr. Fabulous]

Thanks for that grossreal, I didn't take into account if the FHOG and stamp duty exemption would not qualify. That would probably make it not worth it for my situation.

It's interesting that it seems that Richard hadn't explained this to you when he was selling the loan to you.

Mark

 

[grossreal]

hi ruroshin
this is a very raw excel but I think you will be able to use it
and it will show that in 2 years you are well and truely behind the 8 ball.
you forgot the stampduty on refinance and sell and you can't refinance to 100% you will get 90% but you are up for mi and at 80% you don't pay back the super fund.
as I say its raw and just did it out of my head so is off the back of a sheet of paper stuff
a few here will be able to get you a better spread sheet but all the cost should be there.
it rough so don't shhoot me for it.
I would be going into the 5 and below years senario on these loans and the fees kill you.
interesting is the return to the fund and it doesn't mater the value of the purchase they are on a good wicket and thats why they are all chasing to school of borrowers
I hope they did give you a holiday with the loan because if you don't use it now you will when you want to refinance and you don't get a red razzo out of your investment.

 

[Barracuda]

Where's Today Tonight now?

hi ruroshin

interesting is the return to the fund and it doesn't mater the value of the purchase they are on a good wicket and thats why they are all chasing to school of borrowers I hope they did give you a holiday with the loan because if you don't use it now you will when you want to refinance and you don't get a red razzo out of your investment.

Now this is what peeves me about our pitiful excuse for current affairs nowadays. In disguising an informercial as a current affairs story last night, where was the actual analysis done by TT? Where was the other side of teh story? Their counter position was pretty weak. I watched the story and near fell of the lounge in anger at the simpleton presenter expounding the virutes of the product.

Our media really sh*ts me.

<rant mode off>

 

[grossreal]

hi mark
with respect for the brokers, they sell what they are told by the funder or bank and they are told the fuzzy things that look great but as dazzling says the devil is in the detail and if the lender said we are going to give you a loan for 5 years and it that 5 years you will pay us nothing for the 20% short fall,great
but by the way we are going to rip 40% out at the end make 60% for ourselfs out of the money we lend out give us and investors a quarenteed 8% margin and you get nothing if you don't hold for more then 10 years and would you like to use my pen it would not look as good.
so
I take the risk for 5 years I get at the end nothing but I bought a property( woopy do) and you get 8% for 5 years and 60% on your money plus I am quarenteing you your return( why because if I lose you have the deeds to my house as second mortgage) this is a win situation
just who is the winner.
and thats why it is caveat emptor, this is the rawest form of hook marketing that I have seen and has been wrapped up as great deal well fo me it is a great deal.
its a greeat deal for who?
my .002

 

[Mr. Fabulous]

I used to think 'Why on earth would someone promote such a ridiculously awful product on a property investors forum?' but I must say thanks to Richard, because hopefully from reading this thread there are people out there that may have considered using it that will run for lives in the opposite direction now.

If this is the case, it's certainly saved some heartache in the short to long term.

Mark

 

[Mr. Fabulous]

Hi gross,

The way I see it, brokers have a responsibility to their clients to provide them with the best product/advice for the client's situation. In financial planning, we have what is known as the 'know your product' rule which requires us to make product recommendations based on what is best for the client.

The same principles need to apply in mortgage broking in my opinion.

Mark

 

[grossreal]

hi Barracuda
tv and papers are there to sell not to assist.
the whole idea is to sell something ( I don't watch much) even the shows have people that are there to sell the clothing that the person it wearing.
the issue with these products for me is very simple,
THERE IS NO REGULATORY BODY LOOKING AT THEM.
you can put out any type of loan you wish and as long as there is a customer you can lend them money.
caveat lending, equity lending, reverse mortgage,vendor injection all these types of lending who is checking, who is the guard or gate keeper (sorry to say and I don't wish to throw this type of lending into the same pot but it does come under it,) is the same people checking on hih, westpoint, mr bangalo.
they keep saying we have a gate keeper, well thats no use when we don't have a gate.this area for me has more holes then some of the girls that work the beat have in there stockings
and for me you have got more chance of getting them off the street then figuring out the total cost of these types of loans but that just my view and don't let it discolour the view of the people with sunshine glasses that have been told that these loans are great.
I have changed two potential people off this type of loan and will anyone I talk to I think it is a very dangerous type of loan, in that you think you are making money but your not.
my .002

 

[Rolf Latham]

Hi Gross

Any loan for PPOR purposes is regulated by the Consumer Credit Code and quite rigorously enforced at times.

Regulation wont solve such issues, only public education.

ta
rolf

 

[grossreal]

hi mark
very simply and a few here hate me saying this
but to become a broker takes about 4 months part time and then you are off on your own do as you like.
there is one broker group that you join for free, they train you for free and then as long as you paint you shop in there logo you are of on your own to sell any loan( and they had a full page add in the sydney morning herald tell you this so its no secret).
I am a broker and I broker only my own deals why
its cheaper and I send the deal out to many brokers to see if they can beat my deal I get myself and if not I run with the deal I have.
the financial planner industry is very different.
I have a couple of brokers that I deal with that did not have any idea at all before I organised them to go and understand lending.
I have one that has been in the industry for about 8 years and two bank have ask me to sit in and give him a hand, one even sent the deal thru me and I sent it back via his group.
why do I use them then
foot soldiers you can't cover all the ground yourself and he is a good worker.
I don't wish to down grade brokers and most here would be great(nudge nudge)but they just do not understand, finance and lending off the back of an envelope as I call it
and the reason for that is the margin is so slim
they must push thru the deals to make a quid and because they are chasing the next client some things fall thru the cracks
and the lenders that wish to get a funny deal through exploit that
I do not nesssary say that in this case but it is my view that it is to easy to become a broker.
it like me saying I am a developer and because I use lots of light bulbs
I will become an electrician ( I am an electrician by trade before some smart a---e adds that) if it took 4 months part time and no exam at the end why not
my real estate agent that just did the last property spoting for me is doing a 4 month broker coarse to send the real estate sales and mortgage thru him and he does not speak very good english and its great he is aiming at his community and the chinese have very different value to the west when it come to money.
its as easy as falling of the pavement the trouble is you can drag a few people with you.
my .002

 

[grossreal]

hi rolf
does an equity loan come under that if the loan is simiar to a jv because a jv doesn't,
if the loan is in the form of equity and not cash then I don't think it does may need to check

 

[Andrew_A]

Have had a quick crunch of these numbers in my journal, it's an interesting product. Can't for the life of me think why this product would be a good thing for most people unless 1) They positively have to own that house in that suburb which they really can't afford anyway or 2) They are people who would otherwise not invest or save unless forced into it. Would say it looks like a sweet deal for the companies who invented it, win for them first of all and win later for the customer potentially.

Renting is still cheap in Vegas, with a disciplined saving habit run the numbers for renting a 365k house in Sunnybank on a 2 year lease and buying an IP.

Buying a PPOR is a luxury in this country, you pay through the nose for it, I figure it's best to start modest with a PPOR and not stretch yourself.. very risky.

Kudos to the people for sharing info about the product and posting some figures, takes courage to push yourself and learn.

Today tonight.... Just a case of expectations not meeting reality if you are offended by this show, understand what they really are (not serious journalism) and it's an interesting insight into popular think of the day.

 

[ruroshin]

It's interesting that it seems that Richard hadn't explained this to you when he was selling the loan to you.

Mark

Just to clarify, I haven't gotten out any loan yet and I haven't approach Richard about getting the loan yet either. I have only asked for information from Richard regarding the EFM loan and I am going to wait 4 months first as apart of my research into the best way forward.

I will definitely research more into the FHOG and stamp duty part.

Mark, regarding calculation the repayment is based on what you can refinance. The point was in my own situation, my cashflow wise will improve (going from single income to dual income) so my refinancing situation can only get better, the benefit of the EFM as I saw it at the time was freeing up cashflow at the beginning which I won't have as much as I would have after 2 years. So initially my loan would be 20% less and after 2 year it would be back to what I would of started off as + 40% of any CG. Obviously the more CG there is the worst off you'll be. But then CG is uncertain but cashflow is a certainty and I was basically trying to improve my cashflow in the early stages.

As I stated before I consider the 40% of CG to be captialised interest that you pay. Also 7% of a $350K over 2 yrs is more than 40% of $40K in capital gain in the scenario I outlined.

hi ruroshin
this is a very raw excel but I think you will be able to use it
and it will show that in 2 years you are well and truely behind the 8 ball.
you forgot the stampduty on refinance and sell and you can't refinance to 100% you will get 90% but you are up for mi and at 80% you don't pay back the super fund.

Grossreal, thanks for the excel I will have a look at it. In my own excel I only had to refinance to 80% to pay back the super + 40% gain if I could save $20K pa (which is conservative estimate).

i.e. $12K in CG + $73K initial deposit + original loan $274K - $40K = $319K this is close to 80% of $396K the estimated value after a 6% and 8% growth.

Anyway, without the FHOG and stamp duty ex then the deal is not good to me so at this point I'll probably won't be going for it. Just wanted to point what I thought initially.

 

[Qlds007]

GR

The FHOG and stamp duty concessions are certainly available under EFM.

 

[Qlds007]

Mark

Tony I would just like to ask you this - did Richard explain to you that when you want to purchase an I.P. further down the track that it's going to shoot your capacity all to hell because the lender is going to see you have a loan for $X even though you're only paying $Y?

Think you are again mistaken here my friend.

Nil Interest & Nil repayment loans still have a bearing on ones capacity.

And for everyones information FHOF and S/D concessions are available.

Seems like a few people here need to read the OSR qualify requirments.

 

[hobo-jo]

Official site here: http://www.efm.info/

My understanding of the product was that the amount financed by the efm does not have to be serviced (ie it is not taken into consideration when applying for further credit), though I could be wrong. If I am right, then this sort of product could give a step up to investors, legging them up to a second property if they can't afford it by other means as I detailed in this thread in December:
http://www.somersoft.com/forums/showthread.php?t=29342

Regardless of whether this product is good or bad for the average home buyer, I think it is certainly going to take off and be a popular product.

Think of all those young families that perhaps can only afford to buy a unit, but want something bigger. This sort of product will give them a leg into a house as opposed to continuing to rent or sacrificing living space in a unit.

 

[Mr. Fabulous]

Just to clarify, I haven't gotten out any loan yet and I haven't approach Richard about getting the loan yet either. I have only asked for information from Richard regarding the EFM loan

My mistake.

Mark

 

[Mr. Fabulous]

Think of all those young families that perhaps can only afford to buy a unit, but want something bigger. This sort of product will give them a leg into a house as opposed to continuing to rent or sacrificing living space in a unit.

Yeah... and then when they want to upgrade they find they can't because most of the CG has been taken from them. This is classic short term thinking and it never ceases to amaze me how many people fall for it.

Mark

 

[grossreal]

hi
I beg to differ if you look at most application paperwork it asks for an a&l and it that you do need to add this lender it is not relavent if you pay anything or not it still a debt and you would require to put in the 40% as this is a liability you dont' have to but thats up to you I like to tell lender the whole truth as they get very upset if they get differing views of your position and serviceability is not the main reason they want this information it risk profile.

and richard I am a bit at a loss why the fhog and the stamp duty will still be available are the lender a equity holder or not
if they are the the person applying could only apply for 80% of the fhog and 80% of the stamp duty at most
and I would like to see what the depts say about that.
to be a lender they would require a return if there is no return then they must be euity holder or a charity,
as they are an equity lender whats the difference with say two people buy a house and one saying I will lend you my equity at no cost.
if this is the case I can see alot of people using this instead of sharing a purchase one can buy and the other equity lend to buy the property I was of the belief if this was done, and it is that you can't get fhog or stamp duty as in effect there is two buyers one with equity and one with a loan if this is not the case people on co invest would love to hear it.
I don't see the difference if one is a super fund is there any ruling that I can have alook at.
I have checked the website and no mention of the fhog or stamp duty.
which is interesting.

 

[alexlee]

Human nature being what it is, I think people will use this to buy a more expensive house than they could previously afford. Like most PPOR owners they will add things and renovate the house. Then a few years down the line, they will upgrade, and get into a holy dispute with the lenders on what the true value is. Why should the financiers benefit from 'sweat equity'? etc etc etc Will most homeowners keep receipts of everything? How much did that bathroom cost to put in 10 years ago? Uh......

Then there will be Today Tonight programs and Daily Telegraph articles about 'greedy financiers' (forget the fact that they got no interest for years) are taking 'hundreds of thousands' of profit from battlers who 'built an old house into a glamorous home' or something like that. I'm seeing lawsuits and years of confusion about this.

Personally, I'm avoiding this product. I'd rather pay LMI or buy a cheaper house.

If you can't afford a place without unusual financing like this, maybe you really can't afford it. Many of those 'people being priced out of the market' articles keep talking about how people can't buy where they want to live. Gee whiz I want to live on the water, and I can't afford to. Too bad. I'll just have to work towards it like generations before me.
Alex