Skippy, the Aussie Fudging Income Computer - skipping over the facts, exported to the

US in 2006?

So What Is an Australian Mortgage?

By Kate Bourland

Services for Real Estate Pros with Marketing with Kate

1 November 2007

http://activerain.com/blogsview/258297/what-is-an-australian-mortgage-

November 01, 2007 07:34 AM

Over the past year a new phenomenon has hit the the United States from the world Down Under.  It's called an

Australian Mortgage and refers to a financial strategy that's been used in the Australian and European markets

for many years. 

The purpose of the Australian Mortgage is to decrease the amount of interest that you pay on a mortgage while increasing the amount of principal that you pay towards the mortgage.  The net effect is that you can own your home free and clear in 1/3 to 1/2 the time it would take to pay of a traditional 30 year mortgage.  If used properly homeowners can save tens of thousands of dollars in interest payments to banks over the term of the mortgage.

In other words, the Australian Mortgage is a type of Mortgage Accelerator.  The concept is not a new one, it's just being packaged and marketed differently and the American Citizens are now becoming aware of

this mortgage planning tool.

How Does the Australian Mortgage Work?

A true Australian Mortgage requires that you refinance your traditional fixed rate or ARM mortgage into a variable rate HELOC or ALOC.  (Home Equity Lines of Credit).  This means that your first and only mortgage

will be a variable rate Home Equity Line of Credit. 

The HELOC will have a higher interest rate that can change on a regular basis.  This higher interest rate is offset by the way the HELOC is managed.  Here's the concept:

1.  A HELOC (ALOC) is acquired as a first on the subject property.

2.  This HELOC will be used as your primary checking account, ATM and on-line bill pay account.  In essence it replaces you current checking and savings account.

3. Your monthly income from paychecks, dividends etc is deposited directly into the HELOC which dramatically drives down the principal balance on your mortgage.

4.  All your expenses, including bills, grocery shopping, entertainment etc is paid out of your mortgage.  The longer the money stays in the account, the less interest that you pay on your principal balance. This uses the money that is currently sitting in your checking account, earning little or no interest, and keeps your loan balance lower.

With this concept, less of your income is going towards paying interest which leaves more money to pay down principal which pays off your home mortgage faster with no change in spending habits.

Who Offers Australian Mortgages?

To my knowledge the only company that offers a True Australian Mortgage in the United States (True meaning the HELOC is used a first mortgage) is CMG Mortgage services.  There was another company that had entered the market but I understand that it is no longer in business. 

There are two companies that offer hybrid Australian Mortgages.  These programs work the same way but use an

ALOC as a second mortgage.  Some feel that this is less risky and safer for US homeowners.  The two companies that offer these programs are U1st Financial and Sydney Financial Group.  I'll be covering these products in a different blog post.  Of the two, U1st Financial is my preferred program.

Do These Programs Work? 

The answer is an emphatic YES, but only if the client is responsible with money and has positive cash flow each month.  The Australian Mortgage is not for someone who has uncontrolled spending or can't currently pay their bills.  Other products would be more appropriate in that situation.

What are the Risks?

There may or may not be tax ramifications so it's important to have a good tax adviser on hand that understands how these products work.  Banks can freeze the credit lines on ALOC's.  While rare and unlikely, it is a possibility and a risk that you should be aware of.  As mentioned above, if you are someone who tends to overspend, using your mortgage as an ATM machine is not recommended.

Is an Australian Mortgage Right for You?

This question is not quite so easy to answer.  While I am a firm believer in The Australian Mortgage and the concept of Money Merge Accounts, they are not for everyone.  Other debt elimination and equity management programs may be more appropriate for your needs.  It's important that the Mortgage Planner that you choose to work with asks you hard hitting questions and takes the time to understand your financial goals. Your decision will depend on where you are in life, your income, your debt load as well as the equity that you have in your home. 

In addition, the decision to choose an Australian mortgage should not be made in a box.  It's important that the Strategic Mortgage Planner you work with has a team of Tax Consultants, Real Estate Agents, Insurance Agents and Financial Planners who are well versed in the concept of equity management.  Your home can be used to create incredible wealth.  The Australian Mortgage can play a role in that wealth creation.  You need to start with a plan and educated professionals who will provide you with the education that you need to make an educated decision.