25% off your mortgage

I can think of at least two things wrong with this.

How to get a discount home loan

 

Sounds too good to be true..... What's the catch?

 

The catch is that you have to buy into their development. No thanks

 

No catch, but the two downsides that came to mind:
Letting people borrow more, when they can't or shouldn't.
Negative equity/forced selling - what then?

 

It's yet another product to encourage speculation. Offer an upfront discount on the idea that property can't do anything but go up.

The positive is the income threshold to qualify is so incredibly low that a lot of people wont even qualify for the product.

 

hahaha are they having a lend "pardon the pun".
So let me get this straight, they are giving you a 25% DEFERRED discount (so not a discount, at all, a defer!) to buy their developments? Sounds fantastic!...except for the fact that you would be buying into a new built community with spare land as far as the eye can see, with likely little chance of capital growth over that 10 year period and once you realise the community you have purchased in actually sucks as there is nothing around you including any decent amenities, you go and sell and WAA LAA you are now left with a 30k differed interest payment, meaning that tiny bit of equity you thought you had for a deposit on your next home is actually non existent.

And I don't even need to read the fine print to know this would not come with an offset account. Another brilliant example of a marketing strategy that dupes the uneducated.

 

1. Start by figuring out where "Murwillumbah" is. The key to any good investment is the location. Also keep in mind they're only offering this to first home buyers.

2. Ask yourself what the price point is? They're not saying, but given the article states income levels needed to qualify for the loans, I deduce that the price point is probably in excess of $450k.

3. Decide if points 1 & 2 match up.


Here's an easy way to give someone a 25% discount on their home loan. Be both the bank and the vendor, sell them the property at such an inflated price that you'll make money even if they only have to pay back 75% of the loan.

 

this is the frightening quote ..

“But most of all it meant smaller payments for us. And one day when we sell we know we’ll be OK to pay the 25 per cent because our home has already gone up in value,” he said.

Cliff

 

It just occurred to me that the way this is probably structured is 75% of the loan is principal & interest, 25% of the loan is interest only. I could be wrong, but there are some comments in the article that suggest this.

To compare the repayments of a total of $400k in lending at 4.5% over 30 years...

100 P&I: $2,027 / month
75% P&I, 25% I/O: $1,895 / month

So they're saving $132 per month. If rates go up by 0.5%, that $132 will disappear. I hope they're budget isn't so tight as to now allow for this.

 

I disagree. For the simple reason, why would they not go I/O the whole time?

 

It says in the article that no interest is accrued on the 25% portion, so it doesn't exist at all for repayment purposes, they just pay 75% of the normal P&I repayment.

This is what the Australian media has fed the uneducated masses for at least 15 years now and given the income threshold on this it's a scheme squarely targeted at the uneducated masses.

 

I considered that, which would mean the interest on the other 25% is capitalising. I can't imagine this would get past ASIC for very long, it's a very, very dangerous proposition. This sort of product shouldn't exist in the current regulatory environment.

The other alternative is they're simply getting a pass on the 25%, no payments, no capitalising. This would suggest they're paying at least 33% too much for the property. Again I imagine ASIC would have a problem with this sort of scheme.

 

Its published from news.com.au?

 

It's basically an option for the lender.

They provide $100k (for simplicity), 75k of it as a loan and 25k as a call option (I think it's a call?) with exercise date at time of sale. So basically for now they've given you 25k to be collected at a future date (which is a clear indication they're making their money on the overpriced sale... as you've said)

Don't disagree that ASIC, among others, probably should have issues with it, it's a product targeted at the vulnerable that could have serious financial repercussions down the road.

 

I still don't get how it works.

I read this as an interest free loan of the 25%....
Surely the money is from the over inflated prices of the property itself?

 

Yeah, agree, that is what came to mind for me, no matter what the background deal is or location, everyone knows homes go down in value from when new, never up unless there was some huge economic inflation in a very short period, which would also be a negative.

So it comes down to location and actual cost.

I do not know the area, but land is generally plentiful in such areas, so then it just depends how much the govt is kicking the tin as to if it is an ok thing or not, looks like govt housing in a different form.

 

Also says on the article that they're a ' not-for-profit afffordable housing provider '. Should they be called a 'deferred-profit housing provider' instead?

 

Think you're giving the masses way too much credit, the informed might know that but the masses have been preached to by the media/government/banks that property can't go backwards ever in Australia, it will double every 7 years no matter what because that's how it always works. There are an awful lot of uneducated people who believe this and, perhaps even more scary, an awful lot of educated people who also believe it.