Shared equity schemes, also known as Shared Appreciation Mortgage(SAM) or Equity Finance Loans (EFM) and other similar branded names, the product has been developed to help make buying a home more affordable. This innovative product has been developed to help make buying a home more affordable. Its appeal will be for –
- first home buyers lacking sufficient funds for entry into the home market by reducing the upfront and ongoing costs of purchasing a new property
- reducing monthly home loan repayments
- allowing buyers to upgrade and purchase a more valuable property than they would otherwise be able to afford
- existing home-owners looking to refinance using the equity in their home to raise cash for other purposes or reduce monthly home loan repayments
This product is only available to owners who live in the property they are using as security.
How does it work?
A shared equity scheme works in conjunction with a traditional home loan offered by the same lender. The traditional portion is like any other home loan where interest is calculated daily and charged monthly.
However, you do not pay ongoing interest on the ‘shared equity’ portion of the loan. Instead of paying interest, you give up some of the capital gain on the property. The shared equity loan is repaid when you sell the property or elect to repay the shared equity loan at which time the original amount borrowed plus up to 40% of the increased value is paid back to the lender. If the property deceases in value, the lender will share a portion of the loss.
The more traditional shared equity schemes involve shared ownership, with the lender taking a stake in your home. However the more recent shared equity loan products are a mortgage product, you retain full title and ownership of your property.
The governments of Victoria, South Australia and Western Australia have announced shared equity schemes.
As this is a relatively new product, it is strongly recommend that you obtain independent legal and financial advice in relation to this product before entering into a loan contract.