AU2009100861A4 - Rent replacement 100% LVR no deposit home loan - Google Patents

Description

Editorial Note For Case 2009100861 Description There are four pages of description and one title page AUSTRALIA Patents Act 1990 INNOVATION PATENT SPECIFICATION DESCRIPTION RENT REPLACEMENT 100% LVR NO DEPOSIT HOME LOAN The invention is described in the following statement RENT REPLACEMENT 100% LVR NO DEPOSIT HOME LOAN Up until now, traditional mortgages have required borrowers to service the entire value of the loan. If a borrower wished to purchase a home with no 5 deposit, they would have to pay interest on the entire value of the property, as well as find a way to save the necessary money to pay for stamp duty, legal costs and other associated purchasing expenses. This has precluded many people in this country from the ability to own their own home. This invention has been devised to provide a stepping stone into the property market for 10 people who currently do not have the means to do so by providing a loan product with structured repayments similar to the current cost of renting a similar property. The loan product in accordance with this invention features a facility that will 15 loan to the borrower the full cost of the purchase price of the property including any secondary costs such as stamp duty, legal fees and Lenders Mortgage Insurance. There will be no requirement for the borrower to supply any money up front. 20 The loan will be comprised of two parts. The first part will amount to the final approved purchase price of the property. This loan shall be designated the Principal Loan. The second part will amount to the total of all secondary costs associated with the purchase of the property. This loan shall be designated the Secondary Loan. The term of the mortgage will be ten (10) years. This is fixed. 25 Repayments will be structured in the following manner. The Principal Loan shall attract an interest only coupon payment calculated on 50% of its starting face value. The Secondary Loan shall be repaid on a standard reducible interest and principal loan. The interest rate for both loans will be variable, and 30 indexed at an appropriate margin to the current Cash Rate as published by the Reserve Bank of Australia.

As the loan will have an LVR of 100%, a statutory requirement is that a Lenders Mortgage Insurance policy be taken out on the loan to mitigate any capital loss. An example of this loan structure is as follows, taking into account a purchase 5 price of AUD$500,000 for the purposes of this demonstration. Principal Loan: (a) $500,000.00 Variable Interest Rate: (b) 7.00% 10 Allowance Interest Rate: (b) 7.00% Secondary Costs: (c) Stamp Duty on Property $ 17,990.00 Stamp Duty on Mortgage $ 1,941.00 15 Lenders Mortgage Insurance $ 10,000.00 Conveyancing Allowance $ 2,000.00 Total Secondary Loan: $ 31,931.00 20 Monthly Principal Interest Component: (d) $ 1,458.33 Monthly Secondary Loan Repayment: (e) $ 534.75 MONTHLY REPAYMENT (f) $ 1,993.09 25 WEEKLY COST (g) $ 459.94 (a) The Principal Loan represent the purchase price of the property. (b) The variable interest rate in this example has been indexed at a rate of 30 400 basis points above the Cash Rate published by the Reserve Bank of Australia as at 2 7 th August, 2009 which is 3%. This basis point premium will be varied according to business needs.

(c) The list of Secondary Costs is not limited to these, and represents the current expected costs associated with the purchase of a property. 5 (d) The Monthly Principal Interest Component is calculated by applying the variable interest rate to 50% of the Principal Loan. (e) The Monthly Secondary Loan Repayment is calculated by applying a standard bank reducible interest and principal loan repayment schedule 10 over a 10 year period to arrive at a set monthly repayment. (f) Items (d) and (e) are combined to arrive at a total Monthly Repayment. (g) Item (f) is multiplied by 12 and divided by 52 to arrive at a total Weekly 15 Repayment. The term of the mortgage is ten (10) years. At the conclusion of this term, the borrower is awarded with a 10% equity share in the property. The remaining 90% will be retained by the mortgage lender for distribution to the wholesale 20 lender and retention of profits. The Principal Loan is repaid at the maturity date by the borrower by selling the property at market, refinancing the property at an agreed market rate in a traditional mortgage or refinancing the property at an agreed market rate in a renewed Rent Replacement 100% LVR No Deposit Home Loan. 25 The mortgage loan will be underwritten by funds secured under a proposed Bond or Hybrid Residential Mortgage Backed Security. The structure of this proposed Hybrid RMBS is as follows. Each HRBMS will be 30 issued in AUD$100 million tranches. The term of the Bond will be ten (10) years. The income stream for the Bond will be comprised of variable interest coupons at an appropriate premium to the Cash Rate as published by the Reserve Bank of Australia on 50% of the face value of the Bond and a deferred income stream comprised of participation in the realised equity growth in the underlying mortgage asset, payable at the maturity of the Bond. This represents an investment vehicle that has never been created in the market 5 before as it allows a direct investment into Residential Property at a wholesale level. The basis for our Innovation Patent application is the innovative business model that we have presented above. There is no retail mortgage product in the 10 market place today anywhere in the world that provides a no deposit 100% LVR mortgage and prepayment of all secondary costs with affordable repayments calculated on a proportion of the loan principal and not the entire principal. The innovative idea is that the borrower is giving up their right to 90% of the 15 capital growth of the purchased asset in return for affordable and manageable mortgage repayments and a gift of 10% equity the property at the conclusion of the loan. In effect it is a sharing of the costs of ownership between the retail buyer and wholesale investor. In addition, there is no wholesale bond instrument in the market that allows a direct investment into the residential 20 property market, and participation in the increase in equity values.

Claims (11)

1. A Mortgage Product that will supply adequate funds to a borrower to cover the purchase price of a property including all statutory secondary 5 costs.

2. The Mortgage Product of Claim 1 wherein each loan is comprised of two parts, being the Principal Loan and Secondary Loan.

3. The Mortgage Product of Claim 2 wherein the Principal Loan is representative of the purchase price of the property and the repayments 10 due to the lender by the borrower of this loan are comprised of interest only payments at an agreed variable interest rate indexed to the Cash Rate as published by the Reserve Bank of Australia on 50% of the original Principal Loan value.

4. The Mortgage Product of Claim 2 wherein the Secondary Loan is 15 comprised of adequate funds to cover the payment of all other costs associated with the purchase of the property including but not limited to Property Transfer Stamp Duty, Mortgage Stamp Duty, Conveyancing and Lenders Mortgage Insurance and the repayments due to the lender by the borrower are comprised of reducible interest and principle 20 repayments at an agreed variable interest rate indexed to the Cash Rate as published by the Reserve Bank of Australia.

5. The Mortgage Product of Claim 1 wherein the term of the loan is ten (10) years and upon completion of all loan repayments due to the lender by the borrower, the borrower will be granted a 10% equity share in the 25 value of the property at the completion of the loan term, though should a default occur during the term of the mortgage, any such equity allocation will be forfeit and the property repossessed and sold to recover capital.

6. The Mortgage Product of Claim 1 wherein each loan written shall have a Lenders Mortgage Insurance policy attached to it pursuant to statutory 30 requirements the premium of which shall be payable by the borrower the cost of which is included in the Secondary Loan.

7. The Mortgage Product of Claim 1 wherein the funds required to lend to prospective borrowers will be raised by selling a proposed Bond or Hybrid Residential Mortgage Backed Security into the wholesale market.

8. The Mortgage Product of Claim 6 wherein the proposed Bond or Hybrid 5 Residential Mortgage Backed Security shall be issued in AUD$100 million tranches at a term to maturity of ten (10) years.

9. The Mortgage Product of Claim 6 wherein the proposed Bond or Hybrid Residential Mortgage Backed Security shall attract income in two separate streams comprised of Variable Proportional Interest Coupons 10 payable every month for the term of the proposed Bond or Hybrid Residential Mortgage Security and Deferred Proportional Equity payable at the maturity of the proposed Bond or Hybrid Residential Mortgage Backed Security.

10. The Mortgage Product of Claim 8 wherein the Variable Proportional 15 Interest Coupons represent variable interest coupons set at an agreed premium to the Cash Rate as published by the Reserve Bank of Australia which is calculated on 50% of the starting face value of the proposed Bond or Hybrid Residential Mortgage Backed Security.

11. The Mortgage Product of Claim 8 wherein the Deferred Proportional 20 Equity represents a proportion of the realised capital appreciation of the underlying mortgage assets under the terms of an investment agreement once the original borrowers are allocated their 10% equity share which is payable to the proposed Bond or Hybrid Residential Mortgage Backed Security holder at maturity when all asset values are realised, which 25 represents the income for the remaining 50% of the starting face value of the proposed Bond or Hybrid Residential Mortgage Backed Security.