Equity Finance Mortgage

[Flash1]

hi tony,
Did you also take into account interest saved over 3 years on the 20% EFM in profit overall which is about $20 000

 

[Flash1]

Hi Myla ,Depends how much you have to pay out.
doesent fit our situation long term as I'm sure a lot of people will agree.

 

[ruroshin]

hi tony,
Did you also take into account interest saved over 3 years on the 20% EFM in profit overall which is about $20 000

Yes, took that into account when I worked out the cost. I used 68.8K for EFM interest and 88.5K for the normal way. Basically the tax difference is about 7K and other difference is the 20K interest.

I still think its mostly for those that want a PPOR and don't care about paying a bit more later to get a home now. You will make a loss unless you refinance quickly in a flat market. If you sold then you haven't gained much because of the entry and exit fee you paid.

 

[Imagine]

Did some calcs on this one.

Thank you for taking the time to explain Ruroshin, I was not sure how the the capital gain was split . So basically what you are saying is that I would only be assessed on 60% of the gain on this property when I sell and do my taxes and the equity partners 40%.


Thanks again

 

[ruroshin]

Hi Imagine,

I've already replied to your post, just read some of the previous post. Your captial gain calculation is off if you are using a 6% p.a over 3 years.

Also, your post has not been deleted it is still on this page in fact.
http://www.somersoft.com/forums/showpost.php?p=277756&postcount=137

 

[Imagine]

Hello Ruroshin,

We did this example with view of working out all costs involved. You have graciously cleared up my error with the tax position, but what about the amount we owe to the equity partner for lending us 20%, How is this worked out is it again (536-450)=86*.40=$34.4 if we factor that in won't this product cost us more then if you went with a conventional loan? and will this fee be payable even if we just want to refinance out of this product to another loan?


Thanks for all contributions

 

[ruroshin]

Hello Ruroshin,

We did this example with view of working out all costs involved. You have graciously cleared up my error with the tax position, but what about the amount we owe to the equity partner for lending us 20%, How is this worked out is it again (536-450)=86*.40=$34.4 if we factor that in won't this product cost us more then if you went with a conventional loan? and will this fee be payable even if we just want to refinance out of this product to another loan?


Thanks for all contributions

The calculation below is just my understanding of the product so you will want to verify it with your MB.

but what about the amount we owe to the equity partner for lending us 20%, How is this worked out is it again (536-450)=86*.40=$34.4

Yes, your equity gained after 3 years of 6% p.a compounding is 536-450 = 86. Of which you must pay 40% to the lender = 34.4. You must also pay back the original 20% that they lend you = 450 * 0.2 = 90.

if we factor that in won't this product cost us more then if you went with a conventional loan?

edit: my calculation is wrong see post http://www.somersoft.com/forums/showpost.php?p=278102&postcount=155

and will this fee be payable even if we just want to refinance out of this product to another loan?

Yes, that is my understanding. Basically what you would be trying to do is refinance before you see much CG, i.e. start in a flat market perhaps just after a property boom and refinance before or at the start of the recovery phase. Your goal would be get that 20% interest free lend and not pay much in CG when you refinance. This is risky thing to do so its not for everyone. This is only a view from an investing and financial situation which I don't think the loan was aimed at.

 

[Mr. Fabulous]

Hi Flash,

This loan doesn't fit anyone's situation for any amount of time (except the super fund - in my opinion). As Tony's example shows, you are still worse off. Believe me mate, the super fund would have looked at this every which way - they will have all their bases covered to make sure they can get as much out of you as possible no matter which way you look at it.

Seriously mate, if you have not taken this loan out yet (and I sincerely hope you haven't) I would be discussing this with a broker who is more interested in getting you a good deal rather than simply spamming a product on this forum then disappearing when the tough questions get asked.

Mark

 

[Mr. Fabulous]

Hi Tony,

I feel that your example *may* be flawed, in that it is my understanding that you can refinance an existing loan to the value of the loan, but you can only access equity up to 80% of the value of the property minus the loan the vendor currently has against the property.

So essentially if you refinance this property, you will be using equity (and paying interest on the drawdown) to give money to the super fund - equity that you could be using to buy more property. In other words, you are paying interest on money that you will never see again.

Brokers - I am happy to be corrected on this if I am wrong.

Flash - taking this into consideration, can you explain how this loan is good for anyone - short or long term. Also, if you have spoken to Richard about this loan - did he explain this to you? If he did, why on earth would you still be interested in this product? If he didn't, then I would be asking him why he didn't.

Mark

 

[ruroshin]

Hi Tony,

I feel that your example *may* be flawed, in that it is my understanding that you can refinance an existing loan to the value of the loan, but you can only access equity up to 80% of the value of the property minus the loan the vendor currently has against the property.

Mark, I've just recently refinance my parents home to 90% so its quite possible.

 

[Mr. Fabulous]

Fair enough mate! But there is still the issue of giving away borrowed funds that interest has to be paid on. For someone like Flash who I take it wants to invest in property, taking this loan, then refinancing to pay out the super fund is only going to put him behind that eightball.

Mark

 

[ruroshin]

Yup, as I said its highly risky if you are using it as an investment. It would only work in a flat market where you don't see much CG.

 

[Mr. Fabulous]

Tony,

Even then it doesn't 'work', because you're going nowhere. No CG = bad for vendor. Who wants to pay interest on a property that isn't going up in value?

Mark

 

[ruroshin]

Tony,

Even then it doesn't 'work', because you're going nowhere. No CG = bad for vendor. Who wants to pay interest on a property that isn't going up in value?

Mark

Mark, no CG means you are getting 20% of the value loan interest free and paying nothing in return i.e. 40% of 0% CG = 0. This is good for the buy and hold type, keep the loan for the years you see no movement in CG then refinance when CG starts to rise.

Might be of use for the CF+ property since you're paying less interest in those years where CG is going nowhere.

We're just speculating what ifs anyway since you can't use EFM for an IP currently.

 

[ruroshin]

Sorry folks I made a huge calculation mistake, when calculating the remaining equity I took away the original standard loan from the new loan but didn't reduce the original standard loan by the principal amount that was paid over 3 yrs.

The proper calculation should be:

For a 450K property

Using EFM loan

Your deposit 10%: 45
EFM deposit 20%: 90
Standard Loan 70%: 315

3yr of interest at 7.4% paying 2.9K per month on P&I: 65.9

3yr of CG at 6% pa: 86

3yr value: 536

Standard Loan after 3yr of P&I payment: 276.5

after 3yr refinance at 95% to access the equity:

New Standard Loan 95%: 509.2

less original Standard Loan: 509.2 - 276.5 = 232.7

less EFM deposit: 232.7 - 90 = 142.7

less EFM 40% of CG: 142.7 - 34.4 = 108.3

less Interest Paid: 108.3 - 65.9 = 42.4

less LMI for 95%: 42.4 - 13 = 29.4

less stamp duty on mortgage: 29.4 - 2

Your return: 27.4

-------------------------------------

Without EFM

Your deposit 10%: 45
Standard Loan 90%: 405 + 6 (LMI) = 411

3yr of interest at 7.4% paying 2.9K per month P&I (using P&I so we can get a equal comparison): 89.7

3yr of CG at 6% pa: 86

3yr value: 536

Standard Loan after 3yr of P&I payment: 396

after 3yr refinance at 95% to access the equity:

New Standard Loan 95%: 509.2

less remaining original Standard Loan: 509.2 - 396 = 113.2

less Interest Paid: 113.2 - 89.7 = 23.5

less LMI for 95%: 23.5 - 13 = 10.5

less stamp duty on mortgage: 10.5 - 2 = 8.5

Your return: 8.5

hrm now that I took into account the extra principal that you paid off in the EFM its now ahead by 19K. Anybody see any mistakes? I think the stamp duty on the mortgage would be a bit less since you only pay stamp duty on the difference of the new and old loan. Its not enough to make an impact in the 19K difference though.

I used calculator at http://www.homepath.com.au/calculators/ to figure out LMI and mortgage stamp duty and assumed the property was purchased in QLD.

 

[The Y-man]

We're just speculating what ifs anyway since you can't use EFM for an IP currently.

I've probably missed something obvious in the (many) posts above, but how do they tell if it is a PPOR?

Could you live in it but rent rooms out for example (i.e. rates, utilities in your name....)

Cheers,

The Y-man

 

[ruroshin]

I've probably missed something obvious in the (many) posts above, but how do they tell if it is a PPOR?

Could you live in it but rent rooms out for example (i.e. rates, utilities in your name....)

Cheers,

The Y-man

good question, i didn't find anything on their FAQ page. Something to ask about.

 

[Simon]

hi luke
have you any answers to the questions.
I think the question in themself have not been answered
and maybe I look for answers not questions but thats me.
if we start asking question not asking question of the people asking questions we will get answers.
I don't aim to please nor do I aim to type, its a medium that I don't like but on a forum its something that needs to be done.
to learn is to understand and I think that at my age to relearn is far gone and I don't nor would I want to relearn.
but thats me
my .002

Trying to decipher this one - please help me out Lawrence.

Do you feel that you are too old to learn anything? Or you don't want to learn anything? Or both?

This must be quite a limitation to your business, developments and offshore fund management.

 

[Simon]

hi mark
for me there is one and only one thing at issue.
if you post do you stand behind your post.
I have posted and have had a grilling from a few members but I stand behind my post and I make no bones about that.
i think that anyone with an idea of this product should but up there views or there understanding.
and what I find very unusual about this post is there are alot of brokers and financial advicers that are on this board and no one can answer these questions.
now why do I find this funny or unusual.
very simply
these are the type of question that should be asked before going into a loan
and if there not
they should be.
we have lots of brokers saying I can get you this loan or that
well tell us about this loan.
a broker is supposed to get you the best deal well is this a good deal,
answer the questions.
oh sorry
I know the answers.
maybe the mod that took off the grossrealisation loan has the answer.
or maybe no one has the answer.
it is no point in saying that you don't like the jenmans of this world just because you wish this post to go away it won't.
this post was put up in three posts and I would like to know and let everyone know what this product is.
and hell if richard says I don't know thats great
repost the grossrelisation vendor finance loan and then you will understand what this product is.
for me its very funny that we get a great product for the somersoft members in three posts
with its here
start to join and now its we can't answer your questions
thats just not good enough.
but ha
I don't need the answer you lot do that don't know or understand it
I would not use it with a 10 foot barge pole but thats me.
the other thing that is very interesting with this post and the other 2 is that the people that I would have thought would have thrown there 2 penny worth in haven't.
were are the people pulling apart living on equity people and the rest

very few have given there opinion.
why ??
this type of product will become very popular and you are going to be asked about it
so start asking questions.
the ones that will be successfull are never the first,
I never get involved with a ground breaking business, I get involved in the one that sees the one thats fallen and fixes the problems ( and thats what this is and the boys are watching)
remember one thing
macq does not use its own money, it only ever uses investors money
its the most agressive bank in the market
its only real sauce of funds is it fees
and out of these fees it outstrips all other banks I know and for me is the shining light for banks.
they do not do developing unless its got a 35% profit margin most lender are on 21%.
they take 51% of a business for finance seed capital.
this is the most agressive bank in our region and they make no bones about it.
and here we have a product that is aimed at the mums and dads home investor with (we don't care what you do and we will take 40% if you make money).
I can tell you the macq bank does not loose money, you can but they don't

this is a commercial bank, a bank that is one of the if not the best bank here in Australia to make profit.
and you are thinking that they are going to take no profit for 15 years on say 150 k.
give me a break
on a 150 injection macq bank want 556 back after 5 years.
some one is not using the right calculator and believe me its not macq bank
I am very interested in say nat r view on this product.
lets see if people can start ask the question that need to be asked.
I didn't start this post but if you start a post you should be able to answer the question.
one question that seem to be also lost in all this why have no big 4 brought out this product or similar or for that matter any major bank.
and before you say macq bank they are a 51% share holder( they are the seed capitalists you need those before you can list) but you have to be able to stay in business for 12 months and get 5 mil into the market place( asic) but with today tonight and three post on somersoft that should be a breeze property investors got a couple of thread also so should be no problem.
once listed no income and no return maybe a bit of a problem to get my 0.25 but thats listing.
and if no interest I would like to see macq banks forward projections.
I will give you a clue where is the door

I am thinking that you want the resident brokers to explain this loan product to you. As it is a brand new product I expect very few are familiar with it. I know I am not. I don't have any opinions either except a feeling that I wouldn't like to write this product.

Other than gleaning that bit from your nonsensical post the rest makes no sense at all to me.

 

[Simon]

hi all
its the 17th and the three posts still here but no other answers
this was to be the great release and somersoft was the first to hear ???
are we going to be the first to hear the answers as well.
or are they a little hard at this stage to answer
for a new product I would have thought that the promoters would be fighting to get this information into the market.

why not.
maybe a few people should be asking please explain
we are here to learn

Once again I am after some clarification Lawrence.

Did you believe that this product was being launched via this forum?

Why don't you direct your questions to the lender direct as you seem frustrated by the lack of answers you are getting here. Just a tip though - probably best that you don't put them in writing.