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. So, a poorly performing Link might result in the Index Mortgage loan balance being greater than under an otherwise equivalent non-indexed mortgage – but that is not the same as negative equity.
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:
Of course, nobody can tell the future. But we can “tell the past”. That is why IMCO undertook an extensive back-testing program, as to which click here. And whilst we can’t know the future, we can model it to make better informed decisions, which is why IMCO undertook an extensive simulation program, as to which click here.
A Link is a purely mathematical concept and so is not “funded” by anybody. It follows that:-
IMCO performs these calculations using its bespoke software, IMSOLVER.
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.
Only the borrower or persons authorised by the borrower may request a Link.
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 Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.
No.
