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If Jack and Adrian's $400,000 property has fallen in value by 5% to $380,000, on sale they may be eligible for a "depreciation allowance" (ie, the EFM lender may share in the realised capital losses).
Note that the EFM lender will not share in any losses if they are not fully realised by you when you repay the EFM (eg, if you refinance into or out of the EFM and there is no actual sale event). The simple principle here is that the EFM lender will only bear real losses, as opposed to "paper" losses.
While Jack and Adrian's property will sell for less than they purchased it for (ie, $380,000), they are able to share with the EFM lender the $20,000 loss that they would have had to otherwise bear by themselves under a traditional home loan arrangement.
In particular, the EFM lender, having originally provided a 20% EFM, will bear $4,000 (or 20%) of their total $20,000 loss. And, importantly, Jack and Adrian will have paid no interest on the EFM for the duration of the period that they have held the loan.
That's right, in this scenario not only has the EFM been interest-free, but the EFM lender has also reduced the original loan amount by the EFM lender's share of the loss. And so, Jack and Adrian are actually $4,000 better off.
Note that the depreciation allowance provided by the EFM lender may not always apply. For example, the EFM lender will not bear losses if you are in default when the property is sold, or if you refinance into or out of the EFM and do not actually realise a real capital loss (ie, because you have not sold your property). | | Year 3 | | Original property value: | $400,000 | | less property value at sale: | $380,000 | | Capital depreciation: | $20,000 | | Original EFM amount (20%): | $80,000 | | less depreciation allowance (20%): | $4,000 | | EFM less 20% of depreciation: | $76,000 | | Traditional home loan repayment: | $265,889 | | Jack and Adrian's equity after repaying the EFM and traditional home loan: | $38,101 |
In order to help you understand how the EFM product works, we have had the leading consumer information company, InfoChoice, develop an EFM comparison calculator and an EFM repayment calculator. You can click on these links to use the calculators.
These tools will help you compare an EFM to a normal home loan or work out the future repayments that you might need to make under an EFM.
We strongly recommend that you obtain independent legal and financial advice in relation to this EFM loan prior to entering into the EFM loan contract.
Please carefully read and review the EFM Disclosure Document available on this website or through one of our accredited lenders. This website does not take into account your personal objectives, financial situation, or particular needs. You should obtain a copy of the EFM Disclosure Document (available on this website) and the EFM Terms and Conditions Booklet from one of our accredited lenders and consider them before making a decision about whether to enter into an EFM.
Note: This example excludes application fees and other fees such as valuation fees, account keeping fees, transaction fees and lenders mortgage insurance (if applicable) as well as transaction costs associated with refinancing a home loan such as stamp duty, government fees, conveyancing fees and stamp duty on lenders mortgage insurance. For any additional assumptions used in calculating this example please refer to the assumptions page. |
Copyright 2008 Rismark International. All rights reserved. Fees, charges, terms, conditions and lending criteria apply. Full details are available on application. EFM loans have been developed by and will be provided by Rismark International Funds Management Ltd ABN 15 114 530 139 AFS licence number 293881 (trading as Rismark International) ('Rismark', 'we', 'us' or 'our'). EFM loans are offered in conjunction with certain traditional home loans offered by approved lenders and their originators. Rismark has appointed Adelaide Bank a division of Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFS licence number 237879 ('Adelaide Bank') as an approved lender Adelaide Bank and its originators ('Adelaide Bank originators') will distribute and manage EFM loans. Rismark has consented to Adelaide Bank and Adelaide Bank originators branding EFM loans as Adelaide Bank or Adelaide Bank originator-branded EFM loans. Rismark may over time also appoint other financial institutions to distribute and manage EFM loans. Rismark has appointed Permanent Custodians Limited ACN 001 426 384 ('Permanent') as lender of record, custodian and mortgagee for Rismark. This means Permanent will enter into the EFM loan contract and Mortgage on behalf of Rismark.(R) Equity Finance Mortgage (EFM) and EFM are registered trade marks of ARES Capital Management Pty Limited ABN 93 113 861 046. TM Equity Finance Mortgage is a pending trade mark of ARES Capital Management Pty Limited ABN 93 113 861 046. ARES Capital Management Pty Limited's ABN 93 113 861 046 intellectual property relating to the EFM product is protected by Australian Innovation Patent Numbers 2005100 871, 2005100 869, 2005100 868, 2005100 867, 2005100 865, 2005100 864, 2007100 445, and 2007100 448.
