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Midkey caters to those who are asset-rich, but can’t secure a traditional loan. The idea was birthed by Richard Young and Scott Collison, with the plan being to empower those who have serviceability challenges.
Borrowers pay all principal and simple interest at the end of the loan with no monthly payments. The interest rate of the loan is 325 bps above the RBA cash rate.
The home loan unlocks some home equity to provide a cash flow injection. Rather than deferring payments, you pay a fee at the end.
The Midkey Deferral Fee is calculated as a percentage of any increase in your home’s value. The percentage is based on the ratio of your Midkey loan amount to your home’s value, agreed upon at the start. If your home’s value doesn’t increase, there’s no Midkey Deferral Fee.
The minimum loan amount is $100,000 and the maximum $5 million. For a first mortgage, borrowers can access up to 35 per cent of the property value and a second mortgage up to 30 per cent.
The loan is fully repayable if the borrower decides to repay the loan, sells the property, dies, or defaults.
There are initial fees, including a 1.5 per cent establishment fee. Other fees are paid at the end of the loan.
The difference between Midkey’s offering and a traditional reverse mortgage is that it is available to all borrowers over the age of 18. Reverse mortgage regulation requires the borrower to be 55-plus (often 60-plus).
It is also generally offered as a first or second mortgage, while reverse mortgages are only offered as first mortgages.
The maximum loan-to-value ratio (LVR) on a Midkey first mortgage is 35 per cent, whereas for a 60 year old a reverse mortgage is up to 20 per cent.
Midkey charges only simple interest. Traditional reverse mortgages normally charge compound interest.
Catering to those who are ‘mid-life’, co-CEO and co-founder Young said Midkey aims to be a “new tool in the broker toolbox” as it solves customer needs when they cannot service existing or additional debt.
“Midkey does not replace existing lenders. Instead, it is a responsible solution for clients who would otherwise go without funding… borrowers are responsible homeowners with plenty of equity in their homes but may be temporarily cashflow constrained,” he commented.
Midkey customers generally have high credit scores, an average age of 54, and an average loan size of $630,000 against an average property value of $3.3 million.
Some use cases of customers include renovations, establishing a business, paying school fees, helping others into property, bridging an inheritance, managing a divorce, or repayment of ATO debt, private lender debt, first mortgage debt, and/or consolidating other debts.
Midkey is available to brokers and direct to customer. Aggregator partnerships are part of the lender’s future plans.
