7 ways you can use a reverse mortgage

October 9th, 2019 by

Got retirement on your radar? A reverse mortgage can help you improve your standard of living during your golden years. Today we’ll look at how some Aussies are using them.

From 2014 to 2054, the number of people in Australia aged between 65 and 84 is likely to more than double, according to ASIC.

This will likely see an increase in demand for equity release products such as reverse mortgages.

“Reverse mortgage products can help many Australians achieve a better quality of life in retirement,” says ASIC Deputy Chair Peter Kell.

With that in mind, today we’ll run through seven real-life ASIC case studies that show how a reverse mortgage can help older Australians achieve financial and lifestyle goals.

1. A loan for day-to-day expenses

Jenny was 74-years-old and living solely on a pension. She had only $664 in her transaction account and $15,260 of credit card debt when she applied for a reverse mortgage.

Jenny took out a $50,000 reverse mortgage to refinance her credit card debt, make home improvements, and cover day-to-day living expenses.

2. Spend quality time with your family

Caroline moved homes to be closer to her children, but found her pension did not allow her to spend time with them or go on holidays.

“I thought why should I sit here and twiddle my thumbs when I’ve only a few years left, so I arranged for some extra money to allow me to just enjoy my time,” said Caroline.

3. Finance a holiday

Fancy a trip overseas? Or perhaps campervanning around Australia is more your style?

Joey was 66-years-old, retired, and living primarily off his pension. He had a property valued at $360,000 and only $1,019 of cash in his bank account which was held by a different lender.

Joey paid for his holiday by borrowing a $70,000 lump sum through a reverse mortgage.

4. Help out a family member in need

Kathleen lived by herself and was saving for retirement. However, when one of her grown children unexpectedly needed extra support, Kathleen left her job to help provide care.

Without work income, she could not afford to cover her debt repayments so she took out a reverse mortgage.

Later, Kathleen was able to re-enter the workforce and made voluntary repayments on her reverse mortgage.

5. Renovate and downsize

Fred was 65-years-old and living alone after separating from his partner. He decided to quit his job and redirect his efforts into building his dream home.

Living on the Newstart Allowance, Fred chose to take out a reverse mortgage to cover the shortfall that losing his partner’s savings and wages caused in finishing the new build.

He planned to finish the home, staying in it no more than 12 months, then downsize in the same area to pay off the reverse mortgage.

6. Continue to live at your current home

Amy and Roger had lived in the same home for the last 30 years. They took out a reverse mortgage to finance home improvements that they believed would allow them to continue to living independently in their home as they grew older.

These improvements included building a ramp to replace stairs, replacing ageing carpets, and installing heating and cooling systems.

7. Early loss of employment

Tom worked for the same employer for about 40 years. After taking unpaid leave to recover from an unexpected illness, his employment was terminated with three weeks’ salary.

Tom was ineligible to receive the age pension so he took out a reverse mortgage to supplement his superannuation and cover his day-to-day living expenses.

Want to find out more?

It’s important to note that a reverse mortgage isn’t for everyone.

There will be some scenarios where it may be a good fit, and others where there may be other more suitable options available.

If you’d like to weigh up which category you fall into, get in touch. We’d love to chat with you about your future needs and whether a reverse mortgage could help fulfil them.

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.

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RBA cuts cash rate, but will the banks pass it on?

October 1st, 2019 by

The Reserve Bank of Australia (RBA) has cut the official cash rate by 25 basis points to a new record low of 0.75%. But will the banks pass on the interest rate cut in full to you?

RBA Governor Philip Lowe said this third rate cut in five monetary policy meetings was made to support employment and income growth.

“The Board also took account of the forces leading to the trend to lower interest rates globally and the effects this trend is having on the Australian economy and inflation outcomes,” he said in a statement.

“It is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target.”

The RBA previously cut the official cash rate on July 2, just one month after making its first rate cut in almost three years (since August 2016).

Now the real question is: will you benefit?

Will the banks pass on this third rate cut in full?

This little infographic by the ABC makes for pretty interesting reading.

It shows just how much of the last two RBA rate cuts each of the big four banks passed on to its customers in June-July.

Indeed, not one of the big four banks passed on both rate cuts in full, with each bank passing on somewhere between 0.40-0.44% (out of 0.50%).

As such, it will be worth keeping an eye on just how much of this most recent rate cut your lender passes on, not to mention how that stacks up against the competition.

Want to know what this rate cut means for your home loan?

With three RBA cuts so close together, it can get a bit confusing as to just how much of these cuts your lender is passing on to you.

The good news is we’re following the market closely and can tell you which lenders pass this third rate cut on to their customers in full, and which lenders don’t.

So if you’d like to find out, then please get in touch – we’d love to help break it down 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.

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Four ways to dive into the property market with a smaller deposit

September 26th, 2019 by

Three-in-five prospective first home buyers intend to buy soon with a smaller deposit, rather than wait until they have saved a 20% deposit. So how do they plan on doing so?

It usually takes between seven to 14 years for first home buyers to save a 20% first home deposit, according to a new report by Genworth on recent and prospective first home buyers (FHBs).

With that in mind, it’s no wonder that 59% of prospective FHBs are eagerly exploring their options to buy now in the current market, rather than risk waiting until house prices rise.

Indeed, about two-thirds of recent and prospective FHBs are of the opinion that property prices will stabilise or increase over the next 12 months.

So what options are available for prospective FHBs with a deposit of less than 20%?

Option 1: First Home Loan Deposit Scheme

The first option, which doesn’t come into play until 1 January 2020, is the Federal Government’s ‘First Home Loan Deposit Scheme’, which three in four prospective FHBs intend to apply for.

Under the scheme, some FHBs will be able to borrow up to 95% of the value of their property without forking out for Lenders Mortgage Insurance (LMI).

But with the scheme limited to just 10,000 FHB loans each year, and the number of Australians who bought their first home in 2018 totalling 110,000, it’s important to have a Plan B up your sleeve.

Option 2: Paying Lenders Mortgage Insurance

In recent times, one-in-three FHBs have opted to bite the bullet and fork out for LMI in order to secure a home loan with less than a 20% deposit.

LMI usually costs between $3,000 and $13,000, depending on the size of the home loan and how much of your deposit you’ve saved.

It’s an insurance policy you’re generally required to take out if you have a deposit of less than 20% (it reimburses a lender if you fail to make repayments and your home is repossessed and sold for less than its outstanding mortgage debt).

Option 3: Bank of Mum and Dad

The third option, which is being considered by one-in-four prospective FHBs, is to ask the ‘Bank of Mum and Dad’ for assistance.

Of recent FHBs that pursued this strategy, 28% had their family gift them some money, 21% had their family lend them some money, and 16% had their family act as guarantor.

Option 4: Off-the-plan

The fourth option, which is not covered in the Genworth report, is to buy off-the-plan, which often requires a deposit of 10% to be paid to the developer to secure the property.

This means you’ll have more time to save for the remaining 10% before settlement while the property is being built.

That said, buying off the plan isn’t without its risks, so be sure to do your research on every facet of the development that happens to catch your eye (the internet is littered with stories of off-the-plan purchases that have gone awry).

Get in touch

If you’re a prospective FHB and you want to find out more about entering the property market sooner rather than later, please get in touch.

We’d be more than happy to run you through your options if you’re looking to buy a home with a deposit less than 20%.

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.

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Business loan rejection causing SME cash flow issues

September 26th, 2019 by

More than one-in-five SMEs are having cash flow problems due to business loans being rejected, according to new research.

The report, by market analysis firm East & Partners on behalf of Scottish Pacific, also shows just one in 10 SMEs believe they are on top of their cash flow.

One of the main culprits?

More than one-in-five business owners cite being rejected from a lending product as the main reason for their cash flow issues, the report states, and a similar proportion of SMEs were unable to take on new work because of these cash flow problems.

“[This] is a massive wake up call to SMEs and their advisors to make sure they are funding their business in a way that optimises cash flow,” says Scottish Pacific CEO Peter Langham.

“A business struggling with cash flow can only stretch working capital so far before something has to give.”

Other major cash flow issues

Business owners see government red tape and compliance as the biggest thorn in their side, with almost three-quarters naming this as their greatest cash flow issue.

Other major cash flow problems stem from suppliers reducing payment terms and customers paying late.

Australian SMEs seeking other lending options

Another interesting tidbit arising from the report is that – for the first time – Australian SMEs are more likely to use a non-bank lender, ahead of their main bank, to fund their 2019 growth plans.

The report shows that over the next six months, 19% of SMEs intend to choose a non-bank lender to fund their growth, compared to 18% of SMEs who intend to stick with their main bank (down from 38% in 2014).

According to East & Partners Head of Markets Analysis, Martin Smith, the rising demand for non-bank lending options to fund new growth investment reflects the reality that there is now a broader array of non-bank lending alternatives to match business owners’ funding requirements.

Still a long way to go

While SMEs are now increasingly looking to lenders beyond the main banks, Scottish Pacific CEO Peter Langham says many SMEs fail to take advantage of the alternatives available to them.

“When it comes to funding growth, overwhelmingly SMEs opt to put their hands in their own pockets – 83% of business owners say this is how they plan to fund revenue growth,” Langham says.

“Some business owners remain unaware of funding alternatives.”

Get in touch

If you’re an SME owner experiencing cash flow problems, or looking to fund your business’s growth, then get in touch.

We’ve got a number of lenders on our panel and would be happy to run you through some options to help secure your business now and into the future.

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.

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Home-ownership within reach: will you qualify for new buyer scheme?

September 18th, 2019 by

Imagine buying your first home with only a 5% deposit and not having to pay lenders mortgage insurance (LMI). Well, that dream is one step closer to reality after the government introduced legislation to implement the First Home Loan Deposit Scheme.

Currently, people with a deposit of less than 20% usually have to pay LMI.

But under the scheme, some first home buyers will be able to borrow up to 95% of the value of their property without forking out for LMI.

The result: first home buyers stand to save up to $10,000 in LMI, allowing them to enter the property market earlier than they would have otherwise.

Now, the scheme is due to commence on 1 January 2020.

But here’s the catch: it’s limited to just 10,000 first home buyer loans each year.

That number is less than 10% of the 110,000 Australians who bought their first home in 2018.

So who gets dibs?

When the Coalition announced the scheme prior to the last election it warned that in order to be eligible first home buyers could not have earned more than $125,000 in the previous financial year, or $200,000 for couples (and both need to be first home buyers).

The recently introduced legislation further stipulates that there will be dwelling price caps which will differ from state to state, as well as between city and regional areas.

These caps haven’t been quantified just yet. But the keyword is that the scheme will be limited to ‘modest’ dwellings.

“Setting caps on the value of properties that can be purchased under the scheme will be a key lever used to constrain potential demand. It will be necessary to set these caps so that only modest properties in regional towns and capital cities can be purchased,” the legislation reads.

“This will also help to target access to the scheme to those first home buyers in more genuine need of assistance.”

So, while we don’t know what these caps are, it’s fair to say that you’re not going to be able to use the scheme to turn a 20% deposit on a $300,000 unit into a 5% deposit on a $1.2 million house.

Who will do the assessing?

To implement the scheme, the National Housing Finance and Investment Corporation (NHFIC) will contract with a panel of lenders, and smaller banks and non-bank lenders will be prioritised to encourage competition.

Participating lenders or mortgage brokers will then assess scheme eligibility alongside normal considerations such as loan serviceability tests.

An alternative model being considered is to have borrowers apply to the NHFIC directly to confirm eligibility. Approved borrowers would then approach a participating lender (directly or via a mortgage broker) to obtain the loan.

What next?

Well, preliminary consultations were initiated in late-May and involved a large number of meetings with a broad range of stakeholders, including lenders (large and small), LMI providers, industry associations, mortgage brokers, and consumer advocates.

Further consultation will continue on the legislative framework before the scheme’s eligibility and operations are fully revealed.

Want to know more?

If you’re a first home buyer looking at cracking into the property market in 2020 – or know someone who is – then get in touch.

Rest assured that we’ll be closely watching how the First Home Loan Deposit Scheme develops and will be able to help you get your application in pronto.

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.

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