Equity Finance Mortgage® (EFM®)

Now there is a new home loan available that can help you reduce your monthly home loan repayments or even purchase a more expensive property than you may otherwise be able to afford. An EFM works in conjunction with a traditional home loan. Together they let you move some of the expense of a traditional home loan to later when you eventually sell your property.

Here’s how: An EFM allows you to borrow up to 20% of a property’s value. There is no annual percentage rate applicable to an EFM loan unless you are in default. You are not required to make any regular monthly loan repayments throughout the term of the EFM loan. Instead, when you sell the property or repay the EFM for any other reason, you repay the EFM amount you originally borrowed plus up to a 40% share of any increase in the value of the property.

To clarify this, the 40 percent, assuming you took out a 20 percent EFM is only of the profit. For example you purchase a property for $300,000, you have 20 percent deposit and cash to cover additional purchase costs, so the total loan required is $240,000. You choose a 20 percent EFM which reduces the traditional loan to $192,000 and the EFM loan will make up the additional $48,000. When the time comes to sell the property the $48,000 will need to be repaid of course. Now lets say the property increased in value by $50,000 during your ownership and was sold for $350,000. The amount to be paid back to the EFM portion of the loan would be $48,000 plus 40 percent of the $50,000 increase. e.g. $48,000 + $20,000 = $68,000 paid back on the EFM.

After this there should be still $282,000 remaining to pay out what ever is left owing on the original $192,000 traditional loan portion. Even if the traditional loan was still at $192,000 for the sake of an example there would be $90,000 remaining which would be $30,000 more than the original $60,000 deposit contributed. And while nobody likes to talk about property values decreasing, if this does happen when you have an EFM and you are selling your property, you may not have to repay the full EFM loan amount - a feature unique to an EFM.

To find out more about and EFM contact Ability Finance now to speak to an EFM accredited lender.

Fees, charges, terms, conditions and lending criteria apply. We recommended you read the EFM Product Disclosure Document available from one of our accredited lenders. Equity Finance Mortgage EFM and EFM are registered trade marks of ARES Capital Management Pty Limited ABN 93 113 861 046.