Reverse Mortgages – Interest Rates Fall

In addition to Centrelink's free services, we also have the National Information Centre on Retirement Investments (NICRI) is a free, independent, confidential service which aims to improve the level and quality of investment information provided to people with modest savings who are investing for retirement or facing redundancy.

http://www.nicri.org.au/

This contribution from Paul McKeon [info@mylifechange.com.au ]

The underlying message is that a person’s 50s and 60s are a great time of their life when they have the time, wisdom and hopefully money to get out and enjoy the adventures and experiences that are available to them.

Media release
May 6, 2008

Warning for younger seniors embracing reverse mortgage

With the under-70 age bracket the fastest growing sector in the reverse mortgage market, industry expert Tim Stoyles is concerned younger seniors are compromising the equity in their home too early.

“The average age of seniors drawing down a reverse mortgage has dropped from 74 to 72, and the fastest growing sector is the under 70’s. $55,000 – 60,000 is the average loan amount. What concerns me is that at 65 you have conservatively 20 years life expectancy, and this figure continues to increase,” said Mr Stoyles, director of reverse mortgage consultancy Sydney Wyde Investments and Mortgage Management.

With reverse mortgage rates around double digits for the first time this decade and the growth area of new applications for this product being that under 70’s age group, potential reverse mortgage applicants need to be careful about how they draw down the loan, he added.

“Compound interest over this period can have a dramatic effect on their home equity, especially when you need this equity for an accommodation bond or aged care costs in future years. If a 65 year old takes out the average mortgage of $60,000 as a lump sum compared to the same amount as an income stream of $1,000 a month for 5 years, the difference in their mortgage balance in 20 years is approximately $90,000.”

“The extra $90,000 at that stage in your life could be the difference in being able to obtain the care you require, at a time when you need it the most.”

Mr Stoyles said brokers and other reverse mortgage lenders should employ the same rationale as SWIMM, ensuring that the focus of using this product is addressing the applicant’s immediate needs only, whilst trying to plan for future requirements.

“You have to remember 20 years life expectancy at age 65 today is just the average, you could have a good 30 years left under your belt so we all need to plan carefully,” Mr Stoyles said.

“It is also important to note that there is nothing stopping you from going back to the Lender for another income stream after the initial 5 years is up, provided the equity in your home is sufficient based on the aged base lending criteria of the Lender.

“With careful planning you could realistically set up a 20 year income stream as the property value keeps pace with the loan balance, provided we start with a smaller monthly annuity. Again, this all depends on your needs and circumstances which should be fully investigated for you.”

For media enquiries, please call Erik Bigalk or Glen Scott at Use My Mind on (02) 6681 3844 or 0421 441 366 erik@usemymind.com.au

Avoid being a hard luck insurance story
Monday, January 21, 2008
Lynelle Johnson

RECENT FLOODS have once again brought out problems with household insurance and with the bushfire season not yet over we could well be hearing more tales of distress. But there are some simple things you can do to avoid insurance trouble.

The Insurance Council of Australia says that 23% of houses in Australia have no insurance. It would be nice to think that those households have keenly calculated the risks and made a clear decision to self-insure. But if everything you own gets wiped out by a disaster, will a few years of saved premiums really seem worth it?

So if you do want to sleep a little easier at night, here's are some tips for keeping your policy current:

• Check your insurance level every twelve months. Make it an annual event.
• List the contents of every room and estimate their replacement value; not their resale value.
• Make an updated checklist of all assets in and around your home. It will help at policy renewal time.
• Make a note of any serial numbers or identity marks for valuable items.
• For unusual items, take photographs or a video to help in their description.

It's also very important to check your policy for the details of which items, and at what values, possessions need to be specifically registered with your insurance company.

It can also be tricky to find out if you even need separate flood cover, as there's no central register of flood prone areas. ASIC say you need to become a detective and check out the following sources:

• Your council may be able to tell you straight away if you live in a flood prone area. (Even if the council cannot answer this question directly, council staff or elected members may at least be able to tell you if flooding has occurred in the area.)
• The local water authority.
• Neighbours who have lived in the area for a long time.
• Local newspapers.
• Local solicitors or conveyancers who handle property matters.
• Insurance companies who do business in the area.
• Local insurance brokers.
• Local banks.

If you do live in an at-risk area cheaper cover can be obtained for 'flash flooding' where the water rises within twenty four hours of the rainfall that caused it. But ASIC strongly advises that you should never buy flood insurance over the phone. You need to get a copy of the policy and make sure you understand what's in it before paying for it.

Choice sell a test for checking your insurance from their website www.choice.com.au

With less than two weeks until election day, it’s time to see what is really being proposed for the benefit of seniors.

Commentators are stating that the difference of voting intentions between older and younger voters has never been greater. Will seniors continue to support the government in large numbers as it has in previous elections?

Due to the huge tax surpluses that the government is enjoying because of the mineral boom, there is a lot of money that both sides are throwing around in election promises.

Just what is being offered for seniors?

This is a brief summary of what is on offer from both sides:

So there we have it.

There is plenty of mirroring between the policies from both sides, so it is up to us within the fortnight to decide which party is to get our vote and decide who will govern the country.

We have lived through two momentous dates for seniors – 1st July 2007 and 20th September 2007, and survived!

The importance of the first date is that once you are sixty and retired, all income earned through your superannuation is tax free. This applies whether you take your income as a complying pension or a lump sum. As it is very easy to get money in a tax free form once you are over sixty, a major strategy for all people approaching retirement will be to get as many assets into super as possible.

I know of no other country in the world that is as generous with its taxation treatment of superannuation once you are over sixty as Australia. Due to huge tax royalties being earned by the government as a result of an annual boom, the government is attempting to redistribute this largesse across the wider community. No tax on super is one example of this.

The second date is important as it has marked changes in the tests that apply in obtaining the aged pension. The assets test upper limit has been made far more generous. This means that many seniors getting a part pension will receive either a full or a much larger part pension. Centrelink will adjust this entitlement automatically.

Many seniors who have previously had too many assets to claim a pension will now be able to do so. However, if you have not previously qualified for at least a part pension but believe that you now will, you must register with Centrelink.

So far so good.

If you have been able to save during your working life, the income you receive in your retirement years will be more generous but if you have not been able to save much in your working life, retirement will mean years of belt tightening as the basic pension has not been adjusted by more that the CPI.

A federal election has been called. It will be interesting to see what the political parties offer seniors. The government has made an opening play for the seniors vote but we are yet to hear what the opposition will offer.

It is a good time for all seniors to be lobbying their current and would-be federal members of parliament for a fair go for seniors.