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On this page we explain whether you can increase the size of your EFM and/or the traditional interest-bearing home loan that is used in conjunction with an EFM.
Can I increase my EFM loan amount?
You cannot increase the amount of an existing EFM loan but you can repay it and take out a new EFM loan for a larger amount (not exceeding 20% of the property's value).
Can I borrow more funds under my traditional home loan after taking out an EFM loan?
Yes, you can increase your traditional home loan amount at any time, provided the new loan amount does not exceed the debt allowed under the "refinancing formula" in the EFM terms and conditions (and your traditional home loan lender approves the increase).
You must first give the EFM lender 14 days' prior notice of the proposed increase and get their consent to the terms of the increase or refinance. The EFM lender will need to arrange for a refinancing valuation to be conducted by a licensed independent valuer selected from their panel of approved valuers before you increase the amount you have borrowed under the traditional home loan.
The "refinancing formula" determines the maximum amount you can borrow under a traditional home loan if you are looking to increase your borrowings. It is based on 85% of the value of your property at the time you apply for any increase in borrowings (known as the "85% Refinancing Value") less the total amount owing under the EFM loan (taking into account any Appreciation Payment, which is the EFM lender's share of any gains), calculated as if the 85% Refinancing Value was the value of the property at the date of the refinancing valuation.
It is important to understand that the EFM lender needs to put the cap imposed under the refinancing formula in place to protect itself in the event that you seek to increase the size of your traditional home loan and literally "crowd out" the EFM.
An obvious example of this would be if you had a, say, 70% normal loan and a 20% EFM (ie, finance worth 90% of the value of your home in total), and you decided to increase the size of your normal loan to 90%. In this case, the total finance would now be worth 110% of the value of your home. Importantly, because the EFM lender ranks behind your traditional lender, the EFM lender is exposed to the last 10% of the finance that is not secured by any property value. The EFM lender is therefore known as being "uncovered" and exposed to grave financial risks. The objective of the refinancing formula is to protect against these situations.
Borrowing more - a practical example of the "refinancing formula"
Jenny and Matt purchased a $531,000 home 3 years ago using a $106,200 EFM loan and $371,700 traditional home loan. They now owe $352,981 on their traditional home loan and want to increase their traditional loan amount to purchase a car. Their property has just been valued at $667,000 and they want to know how much they can borrow:
| Step 1. The current value of the property is first multiplied by 85% | * Value of property in refinancing valuation | $667,000 | | * Multiplied by 85% | $566,950 | | Step 2. The total amount owing on the EFM loan is then worked out as if you were repaying the loan. The 85% Refinancing Value in 1. above is used for this calculation | * Capital appreciation | $35,950 | | * Assumed payout (ie, original EFM loan amount + 40% of capital appreciation) | $120,580 | | Step 3. The total amount owing in 2. above is deducted from the 85% Refinancing Value in 1. above | * Refinancing valuation | $566,950 | | * Less total amount owing | $120,580 | | Step 4. This is the maximum traditional loan amount allowed | * Max traditional loan size | $446,370 |
Note: This calculation excludes application and other fees and charges associated with the increase or refinance such as valuation fees.
Jenny and Matt can increase their traditional home loan amount by up to $93,389 from $352,981 to $446,370 to purchase a car. They will still have to qualify for the increase in borrowings which will be subject to the terms, conditions and lending criteria established by the traditional home loan provider.
Can I refinance my traditional loan after taking out an EFM?
You can pay your traditional home loan out independently of the EFM, however, if you wish to refinance the traditional home loan to another lender independent of the EFM you can only currently do so with one of our nominated lenders, which is presently limited to Adelaide Bank. It is important that you know that if you want to refinance to another lender, outside of our nominated panel, you will have to repay both the EFM and the traditional home loan.
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. |
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.
