FAQ

Can Linking cause “negative equity”?

Negative equity arises when the value of the mortgaged property is less than the mortgage balance.  Of itself, Linking cannot cause negative equity because Linking is not the same as borrowing additional funds under the mortgage and so the mortgage balance does not increase merely because a Borrower puts on a Link. However, Linking to an underperforming index will mean that more of each mortgage payment is attributed to interest charges than would otherwise be the case.

Can the borrower be “worse off” because it Linked its mortgage?

Yes.  A borrower under an Index Mortgage can be “worse off” than it would have been under an equivalent non-indexed mortgage.  This because there is no guarantee that, even over the long-term, the Link will outperform the standard mortgage rate. But there is every reason to believe that it will.  So, the question really ought to be: What is the chance that the borrower will be worse off? If that chance comes to pass, how much worse off might the borrower be? What

Where does the money for a Link come from? What proportion of each mortgage payment is dedicated to funding the Link?

A Link is a purely mathematical concept and so is not “funded” by anybody.  It follows that:- The mortgage balance does not increase merely because the borrower puts on a Link. No part of any mortgage payment is “earmarked” to a Link.  Rather, every dollar of every payment made by the borrower is applied to its mortgage account.

Who does the Index and Link Calculations?

IMCO performs these calculations using its bespoke software, IMSOLVER.

Can a borrower turn off a Link and if so how long does that take?

The borrower or a person authorised by the borrower can turn a Link off at its discretion.  That instruction will be effective at least from the point that a trade in the assets to which the Link refers would settle and clear.

Can anybody but the borrower put on a Link?

Only the borrower or persons authorised by the borrower may request a Link.

What does it mean to have a binding Tax Ruling?

The Index Mortgage takes the benefit of Product Ruling PR 2017/3, issued by the Australian Taxation Office.  The Commissioner of Taxation explains the effect of that ruling like so:- If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you provided the

Do mortgage brokers get paid more commission for Index Mortgages than for non-indexed mortgages?

No.