Midkey offers access to equity through ‘no monthly payment’ home loans

You can apply for a minimum loan amount of $100,000 and a maximum of $5,000,000. The maximum loan-to-value ratio (LVR) is up to 35% if you don’t have a home loan on your property and up to 30% if you do.

In order to successfully apply for a Midkey, you’ll need to meet some general application requirements including:

• Providing residential and employment history
• Declare asset and liabilities position
• Have your income and expenses verified
• Provide three months worth of personal bank statements to verify living expenses
• Have a valuation firm conduct an onsite property valuation

If you’re applying for a Midkey loan as a second mortgage you’ll also be required to hand over your mortgage details from an approved bank partner, including proof of balance.

These loans are available for individuals and joint borrowers but not for companies, trustees or private partnerships. Midkey home loans do not have an offset account or redraw facility, account splits or portability features.

Eligible Midkey properties include non-strata residential properties in Greater Sydney, Brisbane and Adelaide. Midkey aims to offer access to loans in more cities soon, as well as the inclusion of apartments.

Unlike other types of loans, such as a reverse mortgage, Midkey borrowers pay simple, not compounding, interest at a margin of 325 basis points above the RBA cash rate, calculated daily, accumulated and paid at the end of the loan.

This means that the Midkey loan's outstanding balance increases consistently in a linear fashion, rather than interest charged on accumulated interest, which can grow quite expeditiously.

While there are no ongoing fees associated with Midkey home loans, you will have to pay:

• An establishment fee of 1% and then 0.5% for any amount above $500,000 (with a minimum of $1,500;
• A valuation fee, ranging from $330 - $2,650 (quotes required for homes over $5 million) which is paid by the applicant directly to an approved valuer;
• Loan settlement and documentation fees, which cost approximately $450.

All fees, aside from the valuation costs, are deducted from loan proceeds at settlement. Additionally, a valuation discount of a minimum of 5% is applied to a property’s market value.

At the end of the loan, home loan customers will pay:

• The original loan amount;
• Simple interest (not compounding) accumulated throughout the loan period;
• A Midkey Deferral Fee that is a proportion of any increase in the home’s value and the proportion is the Midkey loan amount to the home’s value at the start of the loan;
• A valuation fee (not in all cases) that ranges from $330 - $2,650 (quotes required for homes over $5 million) which is paid by the applicant directly to an approved valuer;
• A discharge fee of approximately $500.

With regards to the Midkey Deferral Fee we can refer to an example where, if your Midkey loan was equivalent to 10% of your home’s value at the beginning of the loan, your Midkey fee will be 10% of any increase in your home’s value by the end of the loan.

In addition to the establishment fee, valuation fee and loan settlement costs, at the end of the loan Midkey borrowers will need to repay the loan amount in full as well as the accumulated simple interest, discharge fee and Midkey’s share of the property's appreciated value.

For instance, if your property's value is $3 million and you borrow $300,000 from Midkey, then choose to sell 20 years later - assuming a yearly property value increase of 4% - your property would have risen in value to $5.4 million over the two decades of ownership.

Considering Midkey lent you 10% of the property's value, you’d need to pay 10% of the increase in value - in this case $240,000 - in addition to an extra amount during the sale. This supplementary amount arises because Midkey reduces your initial property value by a minimum of 5%, effectively amplifying the 10% fee they receive upon sale.

So, in effect, you'd actually be paying Midkey $360,000, which is equal to 15% of the capital gains over 20 years.

Don’t forget that the simple interest charged is calculated at a margin of 325 basis points above the cash rate. At the time of writing, the cash rate is 4.10%, so you’d be paying interest at a rate of 7.35%.

As part of a Midkey case study, an advertising executive, Chris, with a family home in Mosman said he was knocked back by his current mortgage lender for a home equity loan.

“I kept thinking that logically I should be able to leverage the value I have built in my home and not have to sell the house to access it,” he said.

Chris asserted that Midkey was the only loan provider that focused on the equity he already had in his greatest asset - his home - instead of prioritising his current income and his ability, or not, to make additional monthly payments. 

“Midkey is a much-needed no-brainer for us. Instead of our monthly payments increasing with a second mortgage on our house, Midkey showed us how we could reduce our monthly payments overall on our existing mortgage, by 10 per cent. We did this by placing the cash from our Midkey into our offset account with our existing mortgage and we will draw on it over time to fund our school fees,” he said.

While this type of loan worked for Chris and his family, it’s important to do your own research and compare a range of home loans before deciding on applying for a mortgage. What’s right for someone else, may not necessarily be a good fit for you and your financial situation.

Consider discussing your options with a mortgage broker. These home loan experts can examine your finances and recommend mortgage deals that may suit your personal goals and financial needs.