Summary

BACKGROUND

  • Fact: Over the medium to long term, it is highly probable that the total return offered by risk assets (e.g. equities, ETF’s, managed funds) will exceed prime borrower mortgage rates.
  • Objective: Efficiently capture that spread and impute it to the mortgage borrower, in the form of a lower interest rate.
  • Constraint: The lender must receive the same loan margin, in exchange for the same risk, as in a traditional mortgage.
  • Solution: The Index Mortgage.
  • Consequence: A new and better mortgage.  A new and better approach to wealth management.

BORROWER BENEFITS

  • 97% Win Rate: The borrower is almost always better off.
  • Better Than Offset: 73% win rate versus full cash offset mortgage.  The win rate increases to 96% if we assume against double digit mortgage rates.
  • Tax Ruling: Supported by ATO Product Ruling PR 2020/4.

LENDER BENEFITS

  • Increase Market Share: Unique product, offering significant benefits.
  • Increase Profit: Loan margin maintained.  Dollar profit increases.
  • Scope: Any mortgage can incorporate an Index option.
  • In Force Book: Existing mortgages are simply converted.
  • Sticky: An Index Mortgage book should suffer significantly lower churn.
  • Liquifiable: Index Mortgages can be sold or securitised.
  • Fully Hedged: No basis risk.

“We believe the Index Mortgage will drive a sea change in the mortgage market …”

Citigate Dewe Rogerson, LaunchSure Report