Thinking about a reverse mortgage to fund your retirement?

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With a reverse mortgage you can unlock nest egg funds without having to sell your whole nest. Here’s how we can help in the process.

Reverse mortgages have popped up in the news this week – both for good and not-so-good reasons.

On the one hand, corporate regulator ASIC says reverse mortgages are allowing older Australians to achieve their immediate financial goals and help improve their lifestyles in retirement. That’s the good.

On the other hand, ASIC warned that longer-term challenges exist, with a comprehensive review finding borrowers had a poor understanding of the risks and future costs of their loan. That’s the not-so-good.

The great news for you is that we can help in both departments.

But first, what is a reverse mortgage?

Reverse mortgages are a credit product that allow you to borrow using the equity in your home as security.

The loan can be taken in one big lump sum, a regular income, or a line of credit.

The older you are, the more you can borrow. If you’re aged 60, you can borrow about 15-20% of the value of your home. The rule of thumb is that you can add about 1% to your borrowing capacity each year thereafter. So if you’re 70, you can borrow 25-30%.

The upside: the loan doesn’t need to be repaid until much later, such as when the borrower passes away or vacates the property.

The catch: a reverse mortgage is a more expensive form of credit compared to standard home loans; the interest rates are typically 2% higher and, as there are no repayments required, interest compounds.

The challenges

Remember how we mentioned ASIC’s findings that borrowers have poor understanding of the risks and costs associated with a reverse mortgage?

Well, let’s dissect that a bit.

ASIC has just reviewed data on 17,000 reverse mortgages and conducted a bunch of interviews with borrowers and industry stakeholders.

The crux of their findings is that lenders need to do more when it comes to letting borrowers know how a reverse mortgage can impact their ability to fund their financial needs down the track – needs like being able to afford aged care.

In fact, for nearly all of the loan files ASIC reviewed, the borrower’s long term needs or financial objectives were not adequately documented.

How we can help

Now, that’s not to say reverse mortgages aren’t a viable option to help fund your retirement.

In fact, ASIC Deputy Chair Peter Kell said this about them: “Reverse mortgage products can help many Australians achieve a better quality of life in retirement.”

What’s needed, added Kell, is someone who you can have a “genuine conversation with” about your possible future needs – “not just a set of tick boxes on a form.”

And as you know, getting to understanding who you are and what your goals are is what we do best.

So if you’d like to find out more about reverse mortgages, get in touch. We’d be more than happy to help you navigate the challenges and find a suitable reverse mortgage option.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

It’s all about balance: Using an offset account to your advantage

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Want to avoid sinking your entire savings balance into your mortgage? An offset account could be the solution you’ve been looking for.

An offset account is straightforward to set up and easy to understand. It also has the potential to save you thousands of dollars and could shave years off your mortgage.

Got your interest yet?

Yup! But what’s an offset account?

Basically, an offset account is a regular transactional account which is linked to your home loan.

The advantage is that you only pay interest on the difference between the money in the account and the mortgage.

Banks usually offer two types of offset accounts – full offset account, or partial offset account.

A full offset account means that the entire amount in the account is deducted from the principle before you start to pay interest.

In a partial offset account, a reduced interest rate on the mortgage is offered on the equivalent amount in the offset account.

Whichever you choose will depend on the bank and the type of mortgage you have.

How does it work?

Say you owe $350,000 on your mortgage, and have $50,000 in a savings account that you currently use for regular transactions.

If you move that $50,000 into a full offset account, you’ll only pay interest on $300,000 (which is the difference between that amount and the loan principle).

The offset account can then continue to be used for all your daily needs, like receiving your salary and withdrawing cash.

Why else would you consider an offset account?

Well, say for example that you had a savings account with a 3% interest rate and a mortgage with a 5% interest rate.

By allocating money into your full offset account, you’d save more money on interest than you would earn in your savings account.

Additionally, interest on your savings accounts are subject to tax, whereas the interest-saving on your mortgage isn’t.

How much can it save me?

Under the right circumstances, a lot.

Using the example above, if you’re 35 when you take out a home loan, you could shave years off a 30-year loan term just by keeping $50,000 in the offset account.

This means your loan could be done and dusted right in time for your retirement.

Is it right for me?

Of course, there are some additional factors to consider, such as account keeping fees and the minimum amount needed in the account to make it useful.

As everyone’s situation is different, get in touch and we can discuss whether an offset account might be suitable for you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Simple tips to boost the value of your house

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Taking care of basic maintenance tasks before you sell your home is a no-brainer, but a quick and not-too-costly renovation can add a lot of appeal for potential buyers, and may boost the final sale price.
Basics first
Fix those little faults that you no longer notice – leaky taps, rusty gutters, broken window catches. They can make a huge difference to a buyer’s perception of value.
Landscape the garden
A well-kept garden can create a low-maintenance feel before buyers even step inside.
Bring the outside in
Opening living areas to the garden can be as simple as adding big bi-fold doors that create an inviting sense of flexibility.
Take the inside out
A barbecue area, deck, pergola or even a plunge pool all invite buyers to imagine their future lifestyle in your home.
Light and bright
Brightening dark areas boosts a home’s appeal; you can install skylights quite economically, and swap solid doors in dark areas for glass-panelled ones.
Fresh paint makes a home look ready to live in. Think carefully about colours, and maybe seek some interior design advice – although neutral colours present some people with a blank canvas, to others those spaces just seem bland.
A solid footing
New carpets make a home feel new. Again, think carefully about colour. Look under the carpet – those timber floors will be lovely when sanded and sealed.
Green it
Installing solar panels or a solar hot water system can add value for potential buyers, who will see future energy cost savings.
Bathroom fix
A brand-new bathroom can cost a lot. Instead, think of replacing shower curtains with clear glass screens and installing new
taps, a water-saving cistern and even a new toilet seat. Replace small tiles with big ones, and clean/renew the grout.
Add storage
Buyers are looking for places to store their stuff – cupboards in the garage and in neutral spaces such as hallways, or a butler’s pantry in the kitchen is great too.
Some simple and affordable renovation moves can make your home more desirable to buyers, potentially adding to the final sale price.

Breaking up is hard to do

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On top of the emotional impact, there are practical ramifications as well. We look at how to make the transition a little less stressful.
When there’s a separation or divorce, debts you’ve accrued during the relationship unfortunately don’t go away. The longer a couple is together, the harder it can be to unravel all the financial connections.
Here we outline some of the issues facing both de facto and married couples when dealing with what is usually their most significant debt:the mortgage. Used alongside professional legal and financial advice, it’s possible to make this difficult transition a little less stressful.
Get advice from the experts
The end of a relationship is one of life’s most stressful events. You don’t have to handle it alone – there’s emotional, legal and financial support out there.
Counselling: Visit a counselor to work through the emotional weight of breaking up – it’s hard to make decisions when you’re angry or sad. You may want to access a Family Dispute Resolution (FDR)1 mediator to assess whether both parties are emotionally ready to negotiate on money matters, and to help resolve disputes.
Legal advice: Lawyers who specialise in family law can provide legal advice. Initially, they can advise whether you’re eligible for legal aid, and help with timelines and deadlines for your property settlement. Importantly, they should help you to set realistic expectations.
Financial advice: Talk to your lender or broker to understand the current state of your mortgage, and to learn what options are available regarding mortgage repayments. You may be able to defer payments, giving you time to get back on your feet. Your lender or broker can also help you review your finances before you decide whether you can refinance and take on the mortgage yourself. It’s a sad fact, but they’ve probably dealt with this situation before.
Sort out your living arrangements
Some separating couples are able to continue living in the same house, while for others that simply isn’t possible. If one of you needs to move, sort that out first, before turning your attention to the mortgage. Again, financial advisors, lawyers and brokers can help you plan a budget and figure out how your mortgage will be paid until you sell or settle.
Settle your finances
When you divorce or separate, your assets will be divided. To help you understand your financial situation, have all your documentation at hand – bank statements, tax returns, superannuation, and so on. With professional advice, you can figure out your assets and liabilities, what each person is entitled to, and whether one of you can afford to take on the mortgage alone, or if you have to sell.
One option: Sell the property
You might decide to sell your property, divide any assets and move on. The first step is to have your property appraised so you know the market value. From there you can figure out your total equity. For example, if your house is appraised at $800,000 and you owe $200,000 on the mortgage, your equity is $600,000.
Things can become complicated if there’s a disagreement about how and when to split your assets and liabilities. Legal expertise or a mediator may be needed.
Another option: Sell to your partner, or buy them out
If one of you wants to remain in the house, it might be possible for that person to refinance the mortgage and take it on alone, depending on their income and other assets. This is sometimes the preferred option if there are children involved.
Again, agreement must be reached on the value of the property and whether it’s a 50-50 split. Professional property valuers, financial advisors and lawyers are all able to provide advice and information.
It’s difficult figuring out who gets what and when, but getting the right legal and financial advice can help you both break up the mortgage and move on with your lives.
Relationships Australia’s A Fair Share provides a good summary of your options and of the Family Dispute Resolution process. You can also get great information on the legal process from the Family Court of Australia.

Sources:
1 www.ag.gov.au/FamiliesAndMarriage/Families/Family
DisputeResolution/Pages/default.aspx
2 www.relationships.org.au/relationship-advice/publications/
a_fair_share
3 www.familycourt.gov.au/wps/wcm/connect/fcoaweb/home

Refinancing could save you thousands – and give you greater flexibility

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Reducing the interest you pay on your mortgage could help you save thousands of dollars in interest over the period of your loan. As there’s plenty of competition in the home loan sector, it could be worth looking around for a lower rate.

What is refinancing?
Refinancing is the process of replacing an existing loan with a new one. When it comes to home loans, it means your existing home loan is paid off and replaced with a new one. This is different from a second mortgage, where you draw on the equity you have built up in your home.

How can it help me save?
If you were paying 5.37per cent interest on a principal and interest home loan of $600,000 for a 25 year term. Your monthly principal and interest payments per month will total $3,648.00. If you swapped to a mortgage at a lesser rate of 5.24 per cent, however, you’d pay just $3,602 a month. Over 25 years, that saving each month would add up to $13,800 in total savings.1
Another savings option when refinancing is to choose a loan with a lower interest rate but continue with the same monthly payments as you were making on the higher rate. This approach will see you pay less interest and pay your mortgage off faster. Alternatively, refinancing can help save money by consolidating debt from high-interest credit cards or personal loans into a single home loan with a lower rate of interest.2

Features to consider
Most mortgages offer a number of features and benefits. If you’re considering refinancing, it’s a good idea to think about which features are important to you before starting a search for a lower interest rate.
• Variable rate or fixed rate. A fixed rate gives you more certainty over the longer term. A variable rate fluctuates with the market, so you’ll save when it’s down but there’s always a risk it will rise. (In January 1990, for example, the Australian home loan interest rate reached an all-time high of 17.5 per cent.)
• Offset account. Cash in hand can be offset against your loan balance until you need to spend it, potentially saving interest.
• A line of credit. If you have a lot of equity in your home, a lender might be prepared to offer you a relatively inexpensive line of credit secured against the property.
• Repayment flexibility. Repaying a loan fortnightly rather than monthly can make it easier to fit in your budgeting plans.
• Early pay out. You may want the option of paying a loan out early with minimal penalty.

Weighing up the costs
There can be costs associated with refinancing and it’s important to factor these in to your decision-making. For example, if you took out your loan before 30 June 2011, the lender might be able to charge you an exit fee for terminating the loan ahead of schedule. If yours is a fixed-rate mortgage, you might have to pay a break fee.
For a new mortgage, you may have to pay an establishment fee and the ongoing administration fees could be higher than you’re currently paying. And if your loan has redraw facilities, there may be a charge each time you take money out of your account.

Do the maths
You can use an online mortgage calculator to work out what repayments will be for different loan amounts at different interest rates. You can also compare fees and charges to ensure they won’t offset any savings in interest over the life of a loan. The Australian Security & Investment Commission’s MoneySmart website has a useful mortgage switching calculator that can help you assess overall costs.

A broker can help
Refinancing can be a serious financial decision with a number of variables to consider. A good broker can help establish the type of loan that may work best for you, how much you can borrow and any extra features you want. They can then gather information from many different lenders and help assess the costs and benefits associated with each loan. As well as doing the legwork for you, they can guide you through the refinancing process and apply their knowledge and understanding of mortgages to help you achieve the best outcome if you decide to go ahead.

Sources:
1 Rates from: www.nab.com.au/personal/interest-rates-feesand-
charges/interest-rates-for-home-lending
Calculated via: www.moneysmart.gov.au/tools-andresources/calculators-and-apps/mortgage-calculator#!howmuch-
will-my-repayments-be
2 www.fool.com/mortgages/2016/10/30/how-much-couldyou-save-by-refinancing-your-mortga.aspx

Helpful tools & calculators
www.moneysmart.gov.au/tools-andresources/calculators-and-apps/mortgage-switching-