Questions
Answers

Why is the lender of an EFM willing to receive no repayments at all during the EFM loan term?
The money raised by the lender to fund the EFM is sourced from investors who want to obtain very long-term, 25 year exposures to residential real estate. The capital the lender has raised is sourced on the basis of these investors making 25 year commitments to residential property. However, one must understand that these investors will have exposure to a "portfolio" of thousands of EFMs. Accordingly, some EFMs will be repaid earlier than others. The average life of an EFM is likely to be less than 10 years. With exposure to thousands of loans, the investors in the portfolio of EFMs will therefore expect to see cash-flows realised consistently over time throughout the course of the maximum 25 year loan life. So while there will be no interest or principal repayments made by the borrower under an EFM until they decide to repay the entire amount owing, the investor in a portfolio of EFMs will see cash-flows realized over the next 25 years as individual borrowers elect to repay their loans.

Can I take out an EFM® without a traditional home loan?
An EFM is only available in conjunction with a traditional home loan (currently a Balanced Variable Loan through Iden Group). The product has been designed to allow you to reduce the burden of a traditional home loan or to purchase a more expensive property by using both products.

Monthly interest repayments are not made during the term of an EFM. Can this change during the life of the EFM?
No, the terms & conditions do not contain a right to change at a later date. However, if you are in payment default, default interest will apply at a rate of 2% above the Balanced Variable Loan rate .
Does having an EFM stop me from paying extra off my traditional home loan and later redrawing those extra repayments?
You will be able to make extra repayments off your traditional home loan in the same way you could if you did not have an EFM. Having an EFM does not change this. You can also redraw any extra repayments you have made either by using on-line redraw or the manual redraw application. Subject to the terms and conditions of your traditional home loan (currently Balanced Variable Loan through Iden Group).

What legal documents will I get when taking out an EFM?
You will receive a Loan Offer, EFM Terms and Conditions, a separate EFM Disclosure Document that explains the difference between an EFM and a traditional home loan alone and a mortgage over the property to secure the loan. You will also receive a complete set of documents for your traditional home loan. Both sets will be packaged together by the Solicitors so customers receive them at the same time.

If I cannot make payments off my EFM why do I need statement?
EFMs are regulated under the Consumer Credit Code. As a result we must provide you with a regular statement of your loan account. In most cases the statement will simply detail their loan balance outstanding and their security property details. If however the EFM has been or is in payment default you may be charged default interest. The statement will then include details of the default interest amounts debited to the loan monthly as well as any other enforcements costs.

What if my house is destroyed by fire?
You are required to maintain building insurance over their property at all times and have both lenders interest noted on the policy. Failing to do so is an event of default.

Can I purchase a property and later subdivide a portion of the land for sale?
No, the EFM must be repaid in full if you sell or transfer all or part of the property that secures the EFM. This would include payment of any appreciation payment.

Does the quality of the property affect my ability to obtain an EFM?
When the property is valued, the valuer will make comment on the quality of the property. Where the quality is poor or if there are signs of some adverse circumstances such as termite damage, asbestos or poor workmanship, a more rigorous valuation will be required and the EFM may not be approved.

How do I know if I will be better off with an EFM?
A number of factors will influence whether you will be better off using an EFM with a traditional home loan than a traditional home loan alone. They include interest rate movements, the change in property values over time and how long you have the EFM amongst others.

The Disclosure Document you receive with your EFM contract explains these factors and warns that the appreciation payment could be substantial (and more than you would repay using a traditional home loan alone) depending on how much your property increases by.

If in doubt you should obtain independent legal and /or financial advice.

What happens if I do not get consent to my renovations?
You will not be eligible for an improvement amount if you do not obtain consent for your renovations or home improvements before you commence. This means that the amount you repay on the EFM in due course will be based on the full value of the property at the time and not the value less the improvement amount.

Why don't I obtain an improvement amount if I tell you about the renovations later?
The improvement amount is the difference between the value of the property before and after you carry out the renovations. If you do not obtain consent to the improvements before you commence we will not be able to obtain a starting valuation and therefore will not be able to measure the increase in value attributable to your renovations.

What happens if I do four separate renovations for a total value exceeding $20,000?
Each renovation or home improvement project carried out must be for $20,000 or greater and comply with all requirements to be eligible for the improvement amount. A number of smaller renovations will not collectively qualify.

You would be best advised to do a series of projects as one to ensure they qualify.

What do I do if renovations will take longer than 6 months?
You can request an extension of time to complete your renovations if work is delayed. Depending on the duration of the delay, you may be required to obtain a further valuation before consent will be granted this will usually only occur in extreme circumstances. You should apply for consent as close a possible to the date a builder would be available to commence work.

If you have not notified us that the renovations are complete 5 months after consent is granted, you will receive a reminder letter advising that you will need to apply for an extension if work is not completed within the next month.

What happens if I disagree with a valuation of my property?
The original EFM loan amount will be based on the lesser of the purchase price of the property (if applicable) and the current value of the property valued by an approved panel valuer. If you are not happy with that value, you can choose not to enter into the EFM.

If you disagree with a valuation during the life of the EFM (including at the time they are repaying the EFM) you can request a second valuation (at your cost). The valuation must be conducted by a panel valuer in accordance with the EFM valuation requirements. The terms and conditions of your EFM and the disclosure document outline the dispute procedures and how the value is agreed if this occurs.

Why do I need to contact by Broker before repaying their EFM?
The payout figure for a traditional home loan is readily available. The payout figure for an EFM requires a valuation of the property to be conducted so that the appreciation payment or depreciation allowance (if applicable) can be calculated.
You must contact us before you want to repay the EFM to allow us to obtain the valuation and explain the process to you. It also ensures that settlement is not delayed while a valuation is obtained.

Is the property sale price controlled by Rismark in any way?
The only requirement is that the sale be bona fide and at arms length; you cannot for example sell your property to a relative for a price lower than market value. You are required to provide a copy of the sale contract once executed and a valuation of the property to confirm market value.

Will renovations affect the maximum credit increase or refinance amount I can get?
The valuation we obtain before renovations commence will be done on a cost to complete basis. The completed value can be used to determine the maximum amount available on a traditional home loan under the "refinancing formula". Larger renovations may require progress payments from the traditional home loan; as is the case with any standard stand alone traditional home loan.

What happens if my EFM loan term reaches 25 years?
6 months before the loan expiry date, you will receive a reminder letter advising you that the EFM is about to become due for repayment. It will recommend that you contact your accredited lender to discuss your options for repaying the amount due. A further reminder will be sent 3 months before the loan expiry date. A valuation will then be conducted to determine the repayment amount; this will include the appreciation payment (or depreciation allowance if applicable).

After making an offer on a property are there conditions I must advise the agent / vendor?
After making an offer on the property you need to advise that the offer is subject to finance. This is important when you are looking to use the EFM to buy a more expensive property than they could with a traditional home loan.

We strongly recommend that customers  obtain independent legal and financial advice in relation to this EFM loan prior to entering into the EFM loan contract.

 

EFM Disclaimer:
This website does not take into account personal objectives, financial situation or particular needs. Cuatomers  should obtain a copy of the “Equity Finance Mortgage (EFM) Disclosure Document” and the “EFM Terms & Conditions Booklet”, and consider them before making a decision about whether to enter into an EFM. A copy of the EFM Disclosure Document is available on this website. Fees, charges, terms, conditions and lending criteria apply. Full details are available on application.
EFMs are arranged by Rismark International Funds Management Ltd ABN 15 114 530 139. AFS licence no. 293881 (trading as Rismark International). Permanent Custodians Limited ACN 001 426 384 is the lender.
® Equity Finance Mortgage (EFM) and EFM are registered trade marks of ARES Capital Management Pty Limited ABN 93 113 861 046.
TM Equity Finance Mortgage is a pending trade mark of ARES Capital Management Pty Limited ABN 93 113 861 046..
ARES Capital Management Pty Limited’s intellectual property relating to the EFM product is protected by Australian Innovation Patent Numbers 2005 100 871, 2005 100 869, 20058 100 868, 2005 100 867, 2005 100865, and 2005 100 864.