Equity Finance

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Equity Finance Mortgages – How They Can Make The Australian Dream A Reality

Jan 28

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There are still ways to achieve the Great Australian Dream…For many, buying that home, whether it’s your first home or a subsequent one, feels just out of reach. For others, managing home loan repayments can sometimes become a struggle or simply just prevent you from doing some of the things you want to do.Now there is a new home loan available that can help you reduce your home loan repayments or even purchase a more expensive property than you may otherwise be able to afford. An Equity Finance Mortgage, (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.An EFM allows you to borrow up to 20% of the property value and you pay no interest and make no regular payments. Example: Jack and Julie want to purchase a home valued at $400,000.TRADITIONAL HOME LOANProperty Value = $400,000
Deposit = $20,000
Loan Needed = $380,000
Traditional Home Loan (95% of property Value) = $380,000
Lenders Mortgage Insurance Premium = $7,417
Monthly Repayments Required = $2,883ADDING AN EFM TO MAKE PURCHASING A HOME AFFORDABLEProperty Value = $400,000
Deposit = $20,000
Loan Needed = $380,000
EFM (20% of property value) = $80,000
Traditional Home Loan (75% of property value) = $300,000
Lenders Mortgage Insurance Premium = $4,652
Monthly Repayments Required = $2,276Adding an EFM reduces the monthly repayments
While an EFM shares in the capital growth of your property when you eventually sell, it also takes its share in the loss if the property has depreciated, so you don’t end up wearing the total loss. An EFM allows people toLook in areas to buy where they may have originally thought out of their reach.
Reduce their existing mortgage repayments to allow for other things, such as education, property renovation, holiday etc.
AN EFM OVER TIME.In return for the benefits available to you when you take out an EFM, because no annual percentage rate is applicable to your loan (unless you are in default) and you do not make monthly interest repayments during the term of an EFM, you must agree to share any increase in the value of your property with the lender.AN INCREASE IN PROPERTY VALUEFrom the previous example: To repay their EFM in year 6, Jack and Julie must repay $93,900 on top of the $80,000 they originally borrowed. They have made a capital gain of $104,850 and have $190,646 to contribute towards their next property purchase. They have gone from having 5% equity in their home to 30%. In addition, they have saved $43,696 in repayments as compared to a traditional home loan over the same period.YEAR 6Property Value at Sale = $634,750
Less Original Property Value = $400,000
Capital Appreciation = $234,750
Original EFM Amount (20%) = $80,000
Plus Appreciation Payment (40%) = $93,900
Total EFM Payment = $173,900
Traditional Home Loan Repayment = $270,204
60% of Appreciation for Jack and Julie = $140,850
Jack and Julie’s equity after repaying the EFM and traditional home loan = $190,646Of course individual circumstance may depend on eligibility. We recommend talking to a qualified EFM consultant for full details about this product.

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Business Finance – Shares and Equity

Sep 20

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The term equity finance refers to share capital that is invested into a business for the medium to long term in return for a share of the ownership and in many cases an element of control over the running of the business. There are two main forms of equity finance available to businesses. These are business angels and venture capitalists. Equity finance is fast becoming one of the most popular ways of gaining start up finance for businesses.

Equity finance is the perfect example of true risk capital. This is because there is no guarantee that your investor will ever get there money back. Unlike lenders equity finance investors don’t normally have the rights to interest or to be repaid at a particular date. The way in which equity investors regain the money that they have invested into a company is through taking a share of the business and a percentage of the profit. It is because of this high risk involved in equity finance that if your business can not support growth rates of at least 20% you may not be able to attract equity funding. Equity investors are more likely to invest in someone they feel they can trust with a clear business plan and strategy.

As a business you need a clear business plan and strategy regardless of what type of business start up finance you are hoping to attract. You need a comprehensive business plan with a detailed marketing plan and your financial forecast. Your business plan needs to address issues such as how much funding you are going to need and how much control you are hoping to retain over your business. You also need to clearly state what you are using your business start up finance for as well as if your plans are realistic and if your venture is appropriate for outside funding. Whilst you are completing your business plan you also need to consider what potential investors may be concerned about. Without all of this; plus much more no potential investor will go near your business, planning is key if you are hoping to secure external funding.

If you are hoping to gain the financial help of an equity investor there are several questions that you need to keep in mind such as are you prepared to give up some of the shares within your business as well as part of the control over your business? Investors will expect to have some say in the way in which your business is run so you should be prepared for this. You also need to be confident in your business and the products and services that your business has to offer, one way in which you can do this is by identifying what your businesses unique selling point is. As well as this you also need to have the necessary industry skills and experience to drive your business.

For more information about what equity finance can do for your business get in touch with a business angel or venture capitalist today and they will advise you on what to do next.


By: Helen Cox

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