Equity Mortgage

Reporter: David Richardson

It's never been harder to buy a house in Australia. Just putting a roof over your head can soak up more than a third of your weekly income and even then you can't buy where you want because you just can't afford it. But what if you had a silent partner, who paid 20%, and you didn't pay one cent in interest on that portion of your loan. It's called equity finance mortgages or EFM's and it means someone else invests up to 20% into your home.

It basically works like this: say you want to borrow $100,000. First get a small deposit of $10,000 together. Then your equity partner invests 20% or $20,000 and you take out a regular mortgage of $70,000. You never pay interest on your equity partner's share, enabling you to borrow more than you could have, or keep your repayments much lower. The only catch is when you want to sell your house, the silent partner takes 40% of the capital gain. So if the house you bought for $100,000 makes $200,000 at sale time then $40,000 goes to your equity partner and you only walk away with $60,000 in lieu of never having paid one cent in interest on this added investment.

For the first time Equity Finance Mortgages or EFM's will be launched tomorrow by Adelaide Bank. But with EFM's being described as the greatest innovation in home financing in at least a decade it will not be too long before other major banks pick up on the idea.


Equity Finance Mortgages

Website: www.efm.info