WO2005029371A2

WO2005029371A2 - Improved finance software

Info

Publication number: WO2005029371A2
Application number: PCT/AU2004/001270
Authority: WO
Inventors: Misagh Roussi
Original assignee: FINACE INTERNATIONAL Pty Ltd
Current assignee: FINACE INTERNATIONAL Pty Ltd
Priority date: 2003-09-19
Filing date: 2004-09-17
Publication date: 2005-03-31
Anticipated expiration: 2006-03-19

Description

IMPROVED FINANCE SOFTWARE

FIELD OF THE INVENTION

The invention relates to property financing and, in particular, to a method of conducting a financial transaction for one or more real estate properties.

The invention has been developed primarily for use in respect of residential real estate properties and will be described hereinafter with reference to this application. However, it will be appreciated that the invention is not limited to this particular field of use.

BACKGROUND OF THE INVENTION

Home ownership in Australia is relatively high in comparison to the rest of the world. Approximately seven out of ten Australians have purchased their own homes with the remainder renting, boarding or living with parents.

Of the approximately 70% of home buyers, a substantial number have financed the purchase of their home by borrowing money from a lending institution at a fixed or variable interest rate.

Substantial rises in the value of properties in Australia has occurred since the late 1990s which has resulted in home ownership becoming substantially more difficult for the 30% of non-home owners, as well as decreasing the affordability for those 70% who can purchase a home. Unfortunately, as the prices have risen substantially and costs associated with purchasing a home are most often linked to the purchase price or land value, the recent rise in property value has made it even less affordable to own a home.

Many studies and proposals have been published by government, community groups and corporations alike suggesting ways in which housing affordability can be improved generally and particularly for those 30% of non-homeowners. Unfortunately, long-term historical data indicates that the capital value of an average Unfortunately, long-term historical data indicates that the capital value of an average home will double approximately every eight years which will, at best, maintain the affordability of homes at present levels.

It is also the case that for those 70% who finance the purchase of their home that the component of repayments corresponding to levied interest paid by the purchaser to a lender will ultimately be of the same order of magnitude as any increase in capital value (or capital gain) accrued by a property purchased in addition to principal repayments. Therefore, in order for a purchaser to borrow to purchase a home even at low interest rates, the affordability is reduced by the need to pay interest payments being comparable to the principal payments over the life of a financed loan.

OBJECT OF THE INVENTION

It is an object of the invention to provide a method of conducting a financial transaction for one or more real estate properties which will overcome or substantially ameliorate at least some of the deficiencies of the prior art, or to at least provide an alternative.

SUMMARY OF THE INVENTION According to a first aspect of the invention there is provided a method of conducting a financial transaction for one or more real estate properties, the method including the steps of: a financier loaning a purchaser a pre-determined amount of money; the purchaser agreeing to make loan repayments to the financier over a pre- determined loan term such that the loan repayments increase by a pre-determined percentage per annum; and providing the purchaser with an option of paying the loan out earlier than the pre-determined loan term and only at pre-determined times after commencement of the loan; wherein the purchaser pays the financier a pre-determined percentage of any increase in capital value of the one or more properties financed by the loan at the expiration of the pre-determined loan term or at the early payout of the loan at the predetermined times after the commencement of the loan.

Preferably, the method further including the steps of: the financier borrowing the pre-determined amount of money from a lending institution to loan to the purchaser; the financier repaying a pre-determined rate of interest on the borrowing from the lending institution; and the financier paying the pre-determined amount of money to the lending institution at the expiration of the loan term or at the early payout of the loan at the pre-determined times after the commencement of the loan.

In preferred embodiments of the invention, the method further includes the step of the lending institution obtaining insurance against the pre-determined amount of money borrowed by the financier in the event that the purchaser defaults on making the loan repayments.

Preferably, the method further includes the step of the financier charging the purchaser a pre-determined penalty fee if the purchaser repays the loan before the expiration of the loan term or not at the pre-determined times after the commencement of the loan.

In preferred embodiments, the loan repayments increase by an amount of between 5% and 15% per annum from the commencement of the loan. Preferably, the pre- determined loan term is 5, 10, 15, 20, 25 or 30 years. More preferably, the predetermined times after the commencement of the loan that the purchaser can pay out the loan earlier than the expiration of the loan tern occurs every five years from the commencement of the loan.

BRIEF DESCRIPTION OF THE DRAWINGS

Preferred embodiments of the invention will now be described, by way of example only, with reference to the accompanying drawings in which: Figure 1 is a flow chart of a method of conducting a financial transaction according to a preferred embodiment; and Figures 2 to 6 show purchaser repayments according to preferred embodiments and tabular and graphical comparisons with conventional property finance.

PREFERRED EMBODIMENT OF THE INVENTION Referring to Figure 1, there is shown a flowchart of a method of conducting a financial transaction for one or more real estate properties. The method includes the steps of a purchaser applying to a financier for a loan to finance part or all of one or more property purchases. The pre-determined loan amount can also include stamp duties or other taxes or charges that are applicable to the purchase of the one or more properties.

The purchaser applies to the financier via a mortgage broker who receives a pre- determined fee or commission for each application received and/or approved by the financier for the purchaser. If an application is successful and the financier agrees to loan money to the purchaser, the mortgage broker receives a trailing commission of a pre-determined amount over the life of the loan. The pre-determined amount paid to the mortgage broker from the financier can be a set fee, a portion of any remaining loan balance or a pre-determined portion of the total loan.

Once the purchaser's application is accepted by the financier, the purchaser agrees to make repayments for the amount of the loan to the financier over a pre-determined loan term. The pre-determined loan period is preferably 5, 10, 15, 20, 25 or 30 years.

The purchaser also agrees to make repayments to the financier on a monthly periodical basis such that the repayments increase by a pre-determined percentage per annum. The increase in loan repayments is preferably between 5 and 15% per annum from the commencement of the loan and, most preferably, 10%.

The method further includes the step of providing the purchaser with an option of paying the loan earlier than at the expiry of the pre-determined loan at pre-determined times after the commencement of the loan. The pre-determined times after the commencement of the loan are determined to be at five yearly intervals from commencement. However, in other preferred embodiments the pre-determined times, after commencement of the loan for which a purchaser can pay out the loan is every two years or any other agreed pre-determined period of time from the commencement of the loan.

At the end of the loan term or at the pre-determined times after the commencement of the loan, the purchaser pays the financier a pre-determined percentage of any increase in capital value of the one or more properties financed by the loan. In this way, when the purchaser sells the property or properties or at the end of the loan term, the total loan amount (or principal) must be paid to the financier together with a predetermined percentage of any increase in capital value of the property or properties realised or realisable (or realised if the property(s) are sold) at that time.

That is, if the loan is paid out early at the pre-determined times after the commencement of the loan, the remaining principal plus 50% of the increase in the capital value must be paid or, if at the end of the loan term, 50% of the increase in the capital value. In the embodiment shown in the Figures, the pre-determined percentage of any increase in the capital value is 50% so that the purchaser retains half the capital gain and the financier retains the other half of the capital gain.

As shown in Figure 1, the method further includes the steps of a lending institution loaning the pre-determined amount of money to the financier who in turn lends the pre-determined amount to the purchaser. The financier repays the interest portion of the loan to the lending institution on a monthly or yearly basis and, at the end of the term of the loan or after pre-determined times from the commencement of the loan and the loan is paid out, the financier pays the remaining principal to the lending institution.

The lending institution or financier can obtain insurance against the loaned predetermined amount of money in the event that the purchaser defaults on making the agreed loan repayments. Further, the method includes the step of the financier charging the purchaser a pre-determined penalty fee if the purchaser repays the loan before the end of the loan term or not at the pre-determined times after the commencement of the loan. The penalty fee can be a flat fee or a pre-determined percentage of the amount loaned or principal payments remaining outstanding.

Turning now to Figures 2 to 6, there is shown a method of conducting a financial transaction for one or more properties according to the preferred embodiment in which the loan term is 5, 10, 15, 20 years respectively. Figure 2B shows a comparison between the repayments required to be made by a purchaser in the instant method in comparison to repayments that would be required by a purchaser if borrowing money from a traditional lending institution at a pre-determined interest rate. Figures 2C and 2D illustrate the monthly repayments over the five year term in comparison to traditional payments and the difference between the growth in the increase in the capital value of the purchased property or properties and the accrued interest that would be payable by the purchaser under additional financing.

Figures 3, 4, 5 and 6 show the same information except that the loan terms are 10, 15, 20 and 25 years respectively.

It can be seen that the method of conducting a financial transaction for one or more properties provides a more affordable basis for a purchaser to purchase the properties than by conventional loans wherein only a part of the capital gain made by any of the properties over a pre-determined period of time will substitute for interest repayments. It can be seen that repayments made by the purchaser under the instant method will not ever exceed repayments made under a conventional loan from a financial institution.

It will be appreciated that the Figures used in the drawings are for illustration purposes only. Therefore, it can be seen that the borrower is, for all intents and purposes, paying off the loan from the financier in future income dollars which are generally considered to be of a lesser value than an equivalent amount of current income dollars. It is noted that the method also includes the steps of the borrower notifying the financier in the event the borrower makes any capital improvements to the one or more properties so that the cost of effecting the capital improvements can be excluded from the payable increase in the capital value of the proρerty(s) at the end of the loan term or early payout thereof.

The increase in the capital value of one or more properties is intended to refer to the increase in market or other assessment value of the properties. The definition of capital gain in accordance with its meaning under the relevant governing Australian Taxation legislation is expressly incorporated herein by cross-reference.

The foregoing describes only a preferred embodiment of the present invention and modifications, obvious to those skilled in the art, can be made thereto without departing from the scope of the present invention.

Claims

1. A method of conducting a financial transaction for one or more real estate properties, said method including the steps of: a financier loaning a purchaser a pre-determined amount of money; said purchaser agreeing to make loan repayments to said financier over a predetermined loan term such that said loan repayments increase by a pre-determined percentage per annum; and providing said purchaser with an option of paying said loan out earlier than said pre-determined loan term and only at pre-determined times after commencement of said loan; wherein said purchaser pays said financier a pre-determined percentage of any increase in capital value of said one or more properties financed by said loan at the expiration of said pre-determined loan term or at said early payout of said loan at said pre-determined times after the commencement of said loan.

2. A method as defined in paragraph 1 further including the steps of: said financier borrowing said pre-determined amount of money from a lending institution to loan to said purchaser; said financier repaying a pre-determined rate of interest on said borrowing from said lending institution; and said financier paying said pre-determined amount of money to said lending institution at the expiration of said loan term or at said early payout of said loan at said pre-determined times after the commencement of said loan.

3. A method as defined in paragraph 1 or 2 further including the step of said lending institution obtaining insurance against said pre-determined amount of money borrowed by said financier in the event that said purchaser defaults on making said loan repayments.

4. A method as defined in any one of the preceding paragraphs further including the step of said financier charging said purchaser a pre-determined penalty fee if said purchaser repays said loan before the expiration of said loan term or not at said predetermined times after the commencement of said loan.

5. A method as defined in any one of the preceding paragraphs wherein said loan repayments increase by an amount of between 5% and 15% per annum from the commencement of said loan.

6. A method as defined in any one of the preceding paragraphs wherein said predetermined loan term is 5, 10, 15, 20, 25 or 30 years.

7. A method as defined in any one of the preceding paragraphs wherein said predetermined times after the commencement of said loan that said purchaser can pay out said loan earlier than the expiration of said loan tem occurs every five years from the commencement of said loan.