Zero rate home loan has a capital catch

The article states, 'In return, the borrower agrees to surrender up to 40 per cent of future capital gains made over a 25-year loan term'

Does this mean that come the end of the 25 year loan period the bank will force you to sell your home so that they can claim their 40% of the capital gains? :eek: An alternative option for the bank would be for them to increase your loan by 40% of the CG? :mad:
 
Hi Guys
I have attached a calculator to this thread that might help with the calcs.
Remember that the growth the bank should get is only on the growth minus the initial purchase price. Alternastively, If it means that the borrower surenders 40% total equity then that's is highway robbery and could be termed "usering" which is illegal.
Simon
"The catch is that the borrower - a first-home buyer, upgrading home owner or cash-strapped retiree - has to surrender up to 40 per cent of any future capital gain on the sale of their home and make good 20 per cent of any fall in value of the property."
 
I can't see the problem - never sell!

Well, sell when you die, but when that day comes, who cares. Your children shouldn't live for inheritence.
 
Hi all,

Interesting concept about paying out the loan early.

Therewould probably be some sort of penalty, such as 40% of the growth up to the point of when the loan was paid out. As the owner, the obvious thing to do would be to pay out the loan just before the property needed a reno, perhaps help it to that state, and converse with the valuer as to how bad sales in the area are:D :D .

Agree this could be a brave new world of investing, with all sorts of possibilities.

bye
 
Hi,

If we compare this loan to a wrap, how is this loan better? Correct me if I'm wrong but...

Wrap: buyer pays markup on property price (say 25%) at todays market value. Then pays P&I on loan, when property increases in value, refinances and pays off outstanding debt. Cost? 20% premium on price of property at time of purchase.

Equity Share: buyers buys property at market value, property increases in value pays 40% on future market value.

Difference - pay less now or more later?

Factors, which would vary the equation which someone else can write a spreadsheet for are;

- different in interest rates
- time when property is either refinanced or sold.

Just a thought, I wonder if the equity share loans are baloon loans. Ie, 25 yr P&I loans that have their balanced balooned (paid out) after a set number of years ie 5-10.

By the way - in either case, wrap or equity share, people will be foreclosed if they do not pay.

Imagine foreclosure on an equity share property - we sold the house, buy after taking into account selling costs (and our profit margin) you owe us $x

Michael G
 
Hi Michael G
The main difference I see would be the purchase price would not be inflated as with a wrap. Another difference might be that the advantage of wrapping is for short term gain(pre qualifying buyers to refinance later), whereas the Equity share structure is for the long term profit for the lender.In comparison they are quite different.But to answer your question "is one better than the other ?"I suppose the market will decide.
Kind regards
Simon
 
Stewie said:
Does this mean that come the end of the 25 year loan period the bank will force you to sell your home so that they can claim their 40% of the capital gain

What if 2 friends each bought a property with the same value this way. Sold it to each other for the original price (after 25 years)thus not having any capital gains?

Then sold back the properties to each again if they so wished? Does it say anywhere where it has to be a fair market value?
 
kathryn d said:
What if 2 friends each bought a property with the same value this way. Sold it to each other for the original price (after 25 years)thus not having any capital gains?

Then sold back the properties to each again if they so wished? Does it say anywhere where it has to be a fair market value?
I am sure it will all be there in the fine print(the details that is.). This is one loan doc that will have to be read very carefully before proceeding.
Simon
 
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