- A Midkey loan allows eligible homeowners to borrow against their home equity without needing to make regular repayments.
- Instead, simple (non-compounding) interest is added to the loan balance over time.
- The total amount owing is then repaid when the homeowner sells the property, unless they choose to repay the loan earlier.
- Borrowers may also need to pay a deferral fee if they sell their home for more than the value Midkey assessed it to be worth at the time the loan was taken out.
Midkey is a provider of a unique home loan product, the Midkey loan, which allows homeowners to borrow funds against the value of their home without paying the cash back regularly, even if they already have a mortgage.
What is a Midkey Loan?
While the property market continues to broadly climb, cash-flow-challenged homeowners often struggle to make the most of their increasing wealth. That’s where Midkey is designed to come in.
It lets homeowners borrow against their home equity and, unlike a traditional home loan, those turning to the product don't need to make weekly, fortnightly, or monthly repayments. But that doesn’t mean they don’t pay interest.
Midkey will loan you up to 35% of your home’s value if you don’t have a mortgage, or 30% if you do. You’ll then pay back the borrowed funds, plus interest, when you sell the house.
It’s also worth noting that borrowers aren’t locked into a Midkey loan. They can repay in part or in full whenever they wish (subject to a minimum $50,000 repayment). Though, doing so will demand a new property valuation.
What is the interest rate on a Midkey home loan?
Additionally, the offered interest rate is slightly higher than those provided by some traditional lenders – at 3.25% to 4.25% above the cash rate. Here's how that stacks up against rates on some the market's most competitive mortgages:
Lender Home Loan Interest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees Max LVR Lump Sum Repayment Extra Repayments Split Loan Option Tags Features Link Compare Promoted Product Disclosure
Promoted
Disclosure
Promoted
Disclosure
Promoted
Disclosure
Disclosure
What is Midkey's 'deferral fee'?
On top of interest, you’ll also provide Midkey with a portion of any capital gain you make on the sale of your house. It’s called a ‘deferral fee’ and it's directly related to how much you borrow and the ‘agreed initial value’ of your home.
Midkey loan: Example
It's a relatively simple, albeit likely foreign, concept, as per an example provided by Midkey co-founder and former Macquarie and Credit Suisse banker Richard Young.
Let’s assume your home is independently valued at $1.052 million, you owe $500,000 on your traditional mortgage, and you wish to take out a $200,000 Midkey loan.
“We take a 5% discount to that $1.052 million value, so we have what is then called an ‘agreed initial value’, which in this instance is a million dollars,” Mr Young said.
Simple enough. Now, that $200,000 Midkey loan is equivalent to 20% of the agreed value of your home. And let’s also assume you're faced with a 7% interest rate on that loan over the next five years. Then, five years later, you decide to sell.
Flash forward and the gavel has fallen. Congratulations, you’ve sold your house for $1.2 million!
You pay back the $200,000, plus interest (which comes to $14,000 a year, or $70,000 in total). You also provide the lender with a deferral fee of approximately $40,000 – around 20% of your capital gain, based on the agreed initial value.
If your house doesn’t sell for more than the agreed valuation, you don’t need to pay the deferral fee. You’ll also face a fee to establish the loan (1.5% of the borrowed amount) and shirt the cost of the independent valuation needed to kick start it.
With any luck, after all that, it’ll have been worth it to have the extra cash in your back pocket when you needed it.
Midkey is aimed at asset-rich, cash-poor 'midlife' Australians
Mr Young founded Midkey alongside friend and fellow former Macquarie and Credit Suisse banker Scott Collison.
Image: Midkey founders Richard Young (left) and Scott Collison (right), supplied
The pair conceptualised the first-of-its-kind Australian offering after noticing “asset-rich” friends and family – as Mr Young calls them – struggling to access new credit.
“It’s primarily to help mid-life Australians solve their financial issues and achieve their financial outcomes,” Mr Collison told Savings.com.au in 2023.
“We do that in two main use cases; we’re either replacing part of a traditional interest loan and therefore reducing the regular payments on a traditional loan.
“Or the second way we help is; when people are looking to increase their debt but their income is being assessed as not enough to afford additional monthly payments.”
As a Midkey loan relies on the equity in a person’s home, it can bypass income assessments that typically restrain traditional lenders.
The product – which has ASIC’s tick of approval – was tentatively offered to the public for the first time in 2023.
Use cases: Property investment, bridging loans, spending money
There are plenty of use cases for Midkey loans:
- Renovating or upgrading a home
- Upsizing to a larger property
- Investing in property or other assets
- Repaying an existing mortgage to boost cash flow
- Bridging finance
- Allow a homeowner to act as the 'Bank of Mum and Dad'
- Funding a new or existing business
- Discretionary purchases (boats, caravans, new cars, or holidays, for instance)
“The proposition we put to borrowers is, we provide you an incredible amount of flexibility in terms of the time that you choose to repay,” Mr Young said.
How is a Midkey loan different to a reverse mortgage?
A Midkey home loan differs from a traditional reverse mortgage in two key ways: It's available to borrowers of all ages and it charges simple interest, rather than capitalising interest. That means a borrower isn't charged interest on interest.
It might sound like a small thing but it can make a big difference. Just take a look at the difference between simple and compound interest on a $200,000 loan over 20 years – assuming a constant 7.35% interest rate – depicted on the chart below.
Beyond borrowers: ‘Knock on effect’ to the Aussie economy
There’s also the potential of what Mr Young calls the “knock on effect” that equity release products like Midkey could offer the economy.
“There's all of this wealth tied up in people's properties that hasn't been able to be accessed,” he said.
Thus, enough people taking out loans like Midkey could feasibly stimulate the economy.
“Particularly, where those people are investing in businesses, renovating their houses, or buying houses. It just helps the economy get additional support,” Mr Young continued.
The fine print
While we won’t go into all the terms and conditions involved with Midkey – or make any assumptions on a reader’s financial position – there are a few ‘Ts & Cs’ worthy of mention.
Midkey is only available for owners of properties in most Australian capital cities and major population centres, excluding those in Victoria and the Northern Territory.
If a person already holds a mortgage before applying for a Midkey loan, they must be making principal and interest repayments.
Borrowers also need to hold at least 20% usable equity in their home. That is, their home must be worth at least a fifth more than the outstanding balance of their home loan.
- The minimum loan amount available from Midkey is $100,000.
Like a traditional loan, a borrower can default on their Midkey loan.
Some potential triggers of a default include increasing the size of the first home loan without approval or not maintaining adequate home insurance.
On top of that, if the value of a borrower’s home falls below the combined value of their traditional home loan and the Midkey home loan, Midkey will ask they pay to reduce the balance of their loans or risk defaulting.