Damien Percy, AFG Securities
AFG has launched an interest-only mortgage for older borrowers who want to refinance investment property loans and reduce monthly repayments.
The group’s lending division, AFG Securities, is offering its new loan, AFG Home Loans Retro Thrive, to borrowers over 50 years old who have built up substantial equity in their investment property and are looking for some relief from rising rates.
With a maximum loan-to-valuation ratio of 65 per cent, borrowers can sign up for a loan term of up to 40 years.
AFG developed the product after market research indicated that older borrowers feel they are not having their needs met with current mortgage offerings.
AFG Securities general manager Damian Percy said older borrowers often have limited options because of their age and are forced to pay principal and interest on investment properties.
“This is at odds with what they are striving to achieve at that stage in their lives, which is to prioritise cash flow from the income produced by their investment properties, rather than reducing their debts,” Percy said.
AFG’s new loan is the second example of recent innovation in the mortgage market designed to free up cash flow for older borrowers.
In July, a new lender Midkey launched a reverse mortgage for people still working who want to unlock home equity for such purposes as funding a renovation, purchasing another property, paying large costs such as school fees, financing a small business or meeting unexpected expenses.
Like a reverse mortgage, a Midkey loan contract defers payments until the loan is paid out or the home sold, but there are some important differences.
Whereas annual interest on a reverse mortgage is capitalised and added to the principal, Midkey’s deferred interest accumulates on a simple interest basis, rather than compounding.
The loan has been launched with a rate set at the cash rate plus 325 basis points.
In addition, if the value of the dwelling has increased during the loan period, Midkey shares a part of that increase, based on the size of the loan. For example, if the loan represents 20 per cent of the value of the dwelling, the borrower will pay Midkey 20 per cent of the value of the increase over the life of the loan. This is called the deferral fee.
If there is no increase in value over the life of the loan, the borrower does not pay a deferral fee.
Loans are for a minimum of A$100,000. The maximum loan-to-valuation ratio is 35 per cent for a first mortgage and 30 per cent for a second mortgage. The total LVR (including other mortgages) cannot exceed 80 per cent.