Interest free home loans or buy now pay later

The costs of home ownership could be cut by 20 per cent under the terms of a radical zero-interest “equity finance loan” to be launched through major lenders from July.

The idea for the loans arose in work carried out for Prime Minister John Howard’s 2003 Home Ownership Task Force. Christopher Joye, who led the taskforce, now works as an executive director with Rismark, which has patents on the equity finance mortgage (EFM).

For first home buyers who can’t afford to buy a property and want to reduce upfront costs by 20 per cent (lesser or deposit, nil mortgage insurance, nil interest) the attractions are obvious…The product will also appeal to an ambitious, aspirational market which wants to buy a home 25 per cent more expensive than they otherwise could afford…”It allows people the option of upgrading to a nicer, more expensive suburb — if, for example, they wanted to be nearer their child’s school,” says InfoChoice general manager Denis Orrock.

“Equity finance mortgages give asset-rich, income-poor retirees who want to access an equity release mechanism a safer option than a reverse mortgage,” says Rismark executive chairman Richard Facioni. “In contrast to reverse mortgages, EFMs will always leave retiree borrowers with at least 60 per cent of the net equity in their home, irrespective of how high interest rates are, how fast property prices grow, or how long they live in their home.”

Rismark International, has established a joint venture with Macquarie Bank to source funds from capital markets and package them into a product that can be sold to home buyers. The Rismark team includes, among others, Richard Facioni, a former executive director of Macquarie Bank, Russell Aboud, a director of the Australian Stock Exchange and chairman of Ord Minnett, Sandra Donnarumma, previously the chief operating officer of InTech, Glen Bertram, a former UBS executive, and John McGee, a mortgage market expert.

Can’t wait for the complete details of this package to be released to see the upside and downsides of such an arrangement. Doesn’t it sound like a Harvey Norman approach to home loans though!! Something like this could be useful to a lot of people although I could see retirement stratergies changing.

[tags]home loan, mortgage, finance[/tags]

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