The home loan that lets you pay your mortgage and invest

It's not often I come across a truly innovative home loan.

Quite frankly, I haven't been this excited about home loans since redraw and offset were first introduced back in the late '80s.

Not much has happened since then - until now. Aspire Home Loans, underwritten by WealthMaker Financial Services, operates as both a mortgage and an investment product.

While there's nothing new about paying down your home loan and then drawing on the equity in your property to invest in, say, shares or another property, this product is very different.

From the moment you get your home loan, it allows you to start investing without having to outlay any more funds other than your minimum monthly mortgage repayments.

It can do this because there are actually three components to the home loan.

There's the home loan itself (a principal and interest loan), an investment in an S&P/ASX 300 Index managed fund (fees apply) and a gap-protection facility.

Rather than putting all your monthly repayments in the mortgage account, 30% of the principal repayments are diverted towards the investment and distributions from the investment go back into the home loan.

This allows you to invest while paying down your home loan.

According to Michael McAlary, WealthMaker Financial Services managing director, this means that for a 30-year mortgage, should the market perform at historical averages, the investment balance will outstrip the outstanding loan balance by year 22.

McAlary says: "At that point, they would have paid off their home loan eight years earlier without making any extra payments than had they had a standard home loan. If they want to go to the end of a 30-year term, not only do they end up owning their house, they end up with a sizeable investment portfolio."

The obvious question here is what happens if the market doesn't perform. McAlary says the gap protection ensures that the loan term goes no more than 30 years. And, if at maturity you realise a loss following the sale of your investment to cover the outstanding loan balance, the gap protection would kick in.

Of course, this gap protection comes at a price - $25 per $5000 borrowed, payable upfront as a one-off cost. The funds in the gap protection are invested in cash products and credit-rated fixed-interest bonds.

An interesting point worth noting is that there is an independent actuary who looks over the gap protection to ensure there are sufficient funds to cover any "gap" events.

If not, then the gap-protection portfolio "backers" (investors) will be required to top up their investment in the gap protection portfolio.

While there are plenty of benefits to this product - namely it allows home owners to invest in the sharemarket without having to cough up any additional income - plenty of questions will need to be personally answered.

For instance, the investment will affect your tax situation and independent tax advice should be sought on whether or not all the interest relating to your investment is indeed tax deductible.

Aspire says it should be: "Your Aspire investments should be franked and any interest or fees relating to the investment component tax deductible."

The home loan probably won't be the cheapest on the market, but then again you're not getting this product just for the home loan.

(Aspire does say that it is putting together an aggregation model where it could work with your existing lender.)

Other points worth noting are that you can't specify your investment and, while you can access some or all of your investment before your loan term expires, you will lose your gap protection.

While the concept is a good one, it does rely on plenty of assumptions, past performance and market timing.

No doubt you will have a few questions of your own. Best to get independent advice on this one.

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