Aussie home lender offers profit-sharing deal
09.10.2004
By CLAIRE TREVETT (NZ Herald)
An Australasian mortgage lender is offering a scheme in which it splits the profits when owners sell their house. The home loan company is offering 100 per cent finance, plus 2 to 5 per cent for costs such as legal fees. But when they eventually sell their properties, borrowers must be willing to split any capital gain with the lender, Wizard Home Loans.
The Consumers Institute says the scheme holds risks for homeowners and suggests investors get advice.
The deal was developed by Mobius Financial Services and will be offered by Wizard throughout Australia next month. The scheme could be introduced to New Zealand in future, but for now Wizard wants to see how it works in Australia. Borrowers need no deposit or savings history.
The loan interest rate will be 7.69 per cent - higher than the average variable interest rate of about 7 per cent charged by Australia's major banks. When the loan is discharged, the borrower repays the amount outstanding, and a share of any profits.
Wizard takes 20 per cent of the capital gain from someone who borrowed 102 per cent of the purchase price, and up to 50 per cent for those borrowing 105 per cent. If the property does not increase in value, Wizard just gets back the amount outstanding on the loan, but the borrower does not have to repay the extra 2 to 5 per cent borrowed.
Consumers Institute chief executive David Russell said the scheme was risky for homeowners.
"If prices of property drop and you have to sell up for some reason, such as a job transfer, then you won't have enough equity in the house to cover the loan.
"It has a superficial attraction and could work, but should not be entered without proper advice."
The loan's developers said that in Australia, at least, a homeowner borrowing 102 per cent of the purchase price would still come out better off than someone renting for three years while trying to save a deposit.
How it works
Mark buys a house for $350,000. He borrows $357,000 - the purchase price plus 2 per cent for conveyancing and other costs.
Five years later, Mark sells the house for $410,000. Wizard gets the amount Mark still owes on the loan, plus 20 per cent of the capital gain, or $12,000. Mark gets the other $48,000 of the increase.
If Mark had borrowed 5 per cent on top of the purchase price, Wizard would get half of the capital gain - $30,000.
09.10.2004
By CLAIRE TREVETT (NZ Herald)
An Australasian mortgage lender is offering a scheme in which it splits the profits when owners sell their house. The home loan company is offering 100 per cent finance, plus 2 to 5 per cent for costs such as legal fees. But when they eventually sell their properties, borrowers must be willing to split any capital gain with the lender, Wizard Home Loans.
The Consumers Institute says the scheme holds risks for homeowners and suggests investors get advice.
The deal was developed by Mobius Financial Services and will be offered by Wizard throughout Australia next month. The scheme could be introduced to New Zealand in future, but for now Wizard wants to see how it works in Australia. Borrowers need no deposit or savings history.
The loan interest rate will be 7.69 per cent - higher than the average variable interest rate of about 7 per cent charged by Australia's major banks. When the loan is discharged, the borrower repays the amount outstanding, and a share of any profits.
Wizard takes 20 per cent of the capital gain from someone who borrowed 102 per cent of the purchase price, and up to 50 per cent for those borrowing 105 per cent. If the property does not increase in value, Wizard just gets back the amount outstanding on the loan, but the borrower does not have to repay the extra 2 to 5 per cent borrowed.
Consumers Institute chief executive David Russell said the scheme was risky for homeowners.
"If prices of property drop and you have to sell up for some reason, such as a job transfer, then you won't have enough equity in the house to cover the loan.
"It has a superficial attraction and could work, but should not be entered without proper advice."
The loan's developers said that in Australia, at least, a homeowner borrowing 102 per cent of the purchase price would still come out better off than someone renting for three years while trying to save a deposit.
How it works
Mark buys a house for $350,000. He borrows $357,000 - the purchase price plus 2 per cent for conveyancing and other costs.
Five years later, Mark sells the house for $410,000. Wizard gets the amount Mark still owes on the loan, plus 20 per cent of the capital gain, or $12,000. Mark gets the other $48,000 of the increase.
If Mark had borrowed 5 per cent on top of the purchase price, Wizard would get half of the capital gain - $30,000.
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