Co-funding is short for ‘Co-funded Home Ownership’, which is when you fund some or all of your house deposit (i.e. the portion above the amount you can borrow) with a special-purpose loan (aka a ‘co-funding loan’).
Our co-funding loans are secondary to your mortgage, which means we have a vested interest in your purchase. In a lot of ways, we’re in this together. That’s why we take the time upfront to help with the process, and your property selection.
For a home purchase you will generally be able to fund 80% to 90% by getting a mortgage loan.
While nel will fund up to 50% of the value of your home, in the case of a first home purchase you may only need a co-funding loan for the portion you cannot fund via a mortgage loan or with cash, which will usually range anywhere up to 20%.
We calculate the monthly co-funding fee using a proprietary formula that typically means you pay between 5% to 5.5% per annum, set based on the original co-funded amount.
Co-funding loans have a standard term of five years. Although, depending on your total loan-value ratio (LVR), which is the proportion of your total debt (i.e. first mortgage loan + second mortgage co-funding loan) to the value of the property, you may find you are in a position to refinance some time before or after the standard term.
This is because a co-funding loan is short term and designed to be repaid once your LVR is below 80%. At this level, you should be able to refinance and payout your co-funding loan without incurring Lenders’ Mortgage Insurance.
That’s cool, we get it. We don’t want you to have a co-funding loan any longer than you need to, so there are no break costs associated with refinancing early. Plus the earlier you refinance, the lower the costs on your co-funding loan.
Although keep in mind that you may also be liable for Lenders’ Mortgage Insurance if you are looking to refinance with an LVR above 80%.
We make it easy to repay some of your loan by giving you the flexibility to decide if and how you do it. For example, you can choose to ‘top-up’ your co-funding fee so the overage amount (i.e. the amount over and above your fixed regular payment) is applied to reduce your co-funding loan balance.
This means the ‘payout’, or the amount you need to refinance later, is less.
Nope. Co-funding loans increase by 4.5% per annum, which is added to the loan principal.
This means you reap the benefits of any capital appreciation on the portion you funded with a mortgage loan and/or cash plus the capital appreciation on the portion funded by nel, if it’s above 4.5%.
Sure thing. Jess and Dan are looking to purchase their first home in Sydney, New South Wales. They will need to spend around $1,000,000 for the home they want, and have saved $51,000 so far ($10,000 towards their deposit and $41,000 for additional costs such as stamp duty and legal fees). Jess and Dan like to think they’re pretty savvy with their saving, but the banks will only offer them a first mortgage loan for $800,000 (or up to 80% of the property value), which means they will need to find an additional $190,000 (being the 20% deposit minus $10,000 already saved).
Rather than wait until they’ve saved a further $190,000, the couple decide to co-fund the rest of the deposit with nel and after purchasing their dream home have a first mortgage loan for $800,000 with a bank (2.48% interest on a 30 year term) and a second mortgage co-funding loan for $190,000 with nel (5% on a 5 year term). Their total monthly repayment is $3,945 (comprised of $3,153 for the first mortgage loan and $792 for the second mortgage co-funding loan).
After four years, being one year before their co-funding loan term is up, the property value has grown by $198,000 (total value of $1,198,000) and the balance of their first mortgage loan and second mortgage co-funding loan is $724,424 and $227,395 respectively (total debt of $951,819). Given their total debt is now less than 80% of the value of the property ($951,819/$1,198,000 = 79.5%), Jess and Dan decide to refinance and payout the second mortgage co-funding loan by increasing their first mortgage loan by $227,395, which means their total debt is still $951,819 and their new monthly repayment is $4,142 (up from $3,945).
Absolutely. You are listed on title as the owner and can lease the property on the rental market.
In fact, co-funding is a great way to grow your investment portfolio.