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Jack and Adrian took out an $80,000 EFM and a $280,000 traditional home loan to purchase a $400,000 property. Let's assume that in 6 year's time, Jack and Adrian's property is worth $600,292.
When repaying their EFM in year 6 (while either living in their home and refinancing out of the EFM, or when selling their home), Jack and Adrian must repay the original $80,000 that they borrowed plus an "appreciation payment" equal to 40% of the capital growth on their home during the period that they had the EFM (since they took out a 20% EFM).
The appreciation payment is a substitute for a traditional interest rate -- remember that the EFM lender charges no interst on the EFM and requires no regular interest or principal repayments on the loan during its maximum 25 year term. Jack and Adrian must therefore repay $80,117 on top of the $80,000 they originally borrowed via the EFM. Jack and Adrian have made a capital gain of $120,175 and have $191,584 to contribute towards their next property purchase. They have gone from having 10% equity in their home to 32%.
In addition, they have saved $31,187 in repayments as compared to a traditional home loan over the same period by not having to pay any interest on the 20% EFM during the term of the loan. | | Year 6 | | Property value at sale: | $600,292 | | Less original property value: | $400,000 | | Capital appreciation: | $200,292 | | Original EFM amount (20%): | $80,000 | | plus appreciation payment (40%): | $80,117 | | Total EFM repayment: | $160,117 | | Traditional home loan repayment: | $248,591 | | 60% of appreciation for Jack and Adrian: | $120,175 | | Jack and Adrian's equity after repaying the EFM and traditional home loan: | $191,584 |
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.
