Forum Replies Created
Not at all Dazz but I thought it would explain it sufficiently to you.
Why to you think I am suggesting using an expert in the field of Reverse Mortgages. The guy I know does regular presentations (not seminars!!!) to the elderly so they have a better understanding of the product.
To explain it in layman’s terms would go something like this…
You borrow money secured by a small percentage of your home. Unlike a loan you would be familiar with, you do not have to make repayments as the interest is added to the amount owed. The lender is repaid when you pass away or move into full time care following the sale of your home. They recover the initial loan amount plus any interest that was added and any additional funds above what is owed at that time is passed on to your estate.
The interest rate can be either fixed so you know what the annual increase will be or variable which will change with interest rate changes. The amount owed can never exceed the property value as the lender cannot recover more than the property value at the time of sale. You can also protect a percentage of your home value to pass onto your estate.
The growth in your property value should also help to keep the property value higher than what is owed at any point in time. Remember, you are only borrowing a small percentage of the property value at commencement so it would take many years of interest rates being higher than property growth to eat into the equity so as to leave nothing for your estate. This is unlikely to occur.
______________________I don’t know about your parents, but mine are elderly and have no trouble understanding this explanation. Elderly does not equate to stupid.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksYou need to look at margin lending for those units in a trust or use other equity in a property you already hold.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksThis is exactly why it is important to use someone experienced with dealing with the elderly. They often freak out.
The problem is, not all nice kids can afford to repay a loan for their parents.
A reverse mortgage, when explained properly, does not freak them out. It does not require repayment while they are alive or living in the home and the left over equity still goes to the children. There are very strict guidelines regarding these loans.
There is nothing fancy about a reverse mortgage. It almost operates like a capitalising Line Of Credit and can be either fixed or variable.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksIt would be two seperate loans in whatever names you and your accountant suggest is most suitable.
The 44k is put into the offset even though you will not be able to deduct the interest on any loan if it was used for and is being used to offset non-deductible debt (ie: while you are living in the new property). Once you move into your rental, the whole lot becomes deductible. You can then move the 44k back into the loan to reduce your interest expense but still have funds available for additional investment expenses or leave it in the offset if you do not have free redraw.
It might even be more beneficial to have a seperate smaller split loan to use for investment expenses just to keep things tidy.
A Professional Discount Package seems to be the most suitable from the information you have provided.
It is nowhere near as complicated as it sounds and diagrams help a lot. This one might help a bit…
http://www.mortgagepackaging.com.au/tma/index_files/professional_and_other_loan_packages.htm
Speaking with a good mortgage adviser / broker would also help you to easily grasp the whole structure.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksDazz, my intention was not to rip apart your post. I was merely presenting arguments in opposition to yours. If you noticed, the stability benefit is a very difficult one to oppose as I clearly pointed out. Don’t be so sensitive. Sarcasm is not needed.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksOriginally posted by Dazzling:1. CGT free environment
Can get around this with 6 year CGT exemptions.
2. Opportunity to potter in the garden and add value that ends up in your pocket.Can write yard maintenance into the lease to add value to the investment property.
3. Stability in your local neighbourhood.Not much you can do here but there would certainly be other places to rent in the immediate area if you have to get out of the current one.
Basically all of the non-cashflow reasons.Cash flow is today while capital gains may never come.
I know what I prefer.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksNo problem. Many people here can also help with some great advice.
Good luck with it all in the mean time.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksAmused, I am wondering, who are the ‘so many people’ you refer to who have a vested interest on this site?
Saying that all seminars are scams is something I would expect from less educated individuals. It comes down to the particular seminar being discussed. I agree, many seminars are scams, but I also believe many are fine. You have to weed out the trash from the treasure.
Seminars are just another education and / or sales technique. Focusing on sales, putting an item on ‘special’ is also a sales technique. I consider this more of a scam in most cases because it demonstrates how much lower the product can be sold for while the seller can still make a profit. Why didn’t they sell for cheaper before the special???
Looking into it, it might be because they are a business looking to make as much profit as they can or they may have obtained a better cost price for a bulk purchase or currency move in their favour.
What I am getting at, each individual seminar has to be looked at ‘individually’ before it can be determined that it is a scam or a genuine venture. I think a good example is The Investors Club <
obviously a scam!The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksSee, I think you mean while this is ‘always’ the case, risk can be minimised by spending a lot of money, hours, days, weeks, months, etc becoming skilled in this area.
Hardly a viable solution for someone who inherited shares and no apparent previous experience dealing with them.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksYeah it is right but it does not account for closing costs and loan expenses. In any case, I would recommend doing the loans seperately as I outlined above. It is always better to have each property standing alone rather than cross collateralised especially if they are in different names.
You will not pay double fees for the loans if you take a discount package which would be very suitable at the level of borrowing you will be undertaking.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksAnd what about if the loan aggregate is not greater than $500,000 or the LOC portion is a poultry $50,000? What happens to the cost of the LOC then?
And as you answer, please remember that this is probably the cheapest LOC available.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksThanks for the support!
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksEven with LOC splits I am not a fan. The only time I recommend using a LOC is when it is for a business selling goods and services who uses it for purchasing etc. Even then it is a big IF.
The offset would be set up on the non-deductible portion. You do not need one on the deductible portion as only the interest payments will go to that loan and they will come from the offset account.
If you need to draw for deductible expenses, you have an extra split setup as an interest only loan with free redraw. This is easy to do. If you find it easier using a LOC, then have a small one for this purpose but it will cost you more. The idea is to keep deductible loans and non-deductible loans at their maximum while also maximising deductions but also keeping repayments as low as possible.
Terry loves LOCs. We have an ongoing debate about which is better.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksMargin lending is considered a high risk strategy.
A better alternative would be to have your IP loan changed to interest loan (who knows why it is P&I) and only make interest repayments. I would then direct all additional income from work, rental income AND dividends from shares to the loan secured against your family home to pay it down asap.
Once the equity in your IP is sufficient, I would increase the IP loan to pay out the balance on your family home.
There is more risk associated with margin lending than there is benefit.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksTerry, why do you persist????
That is one out of how many???
Also, the loan amount needs to be at a certain level before you get the same rate AND there is still an annual fee for the LOC. It still costs more!!!
Also, you keep forgetting about the issue of deductibility if using a LOC for non-deductible debt!
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksTo try and tidy a few things up…
If you want to avoid mortgage insurance and your fiance’s property is worth $180,000 with no loan against it, you would only borrow $144,000 against it. I would get an interest only loan for the lot but only use the minimum amount required against the new purchase (to cover deposit and closing costs). Leave the rest sitting there in an offset or redraw for when needed. You only pay for what you use if you get interest only loans.
Assuming you are buying for $500,000, you should only put $100,000 in as a deposit. This avoids the mortgage insurance and maximises your deductibility for when the property becomes an investment. The new loan here would be $400,000 interest only with offset.
Moving into it for 6 months not only secures the FHOG benefits, but it also provides CGT exemptions for 6 years (not 4). You will of course lose this if you move into another property you own.
So you are right. You will not need any of your own money to do this purchase but I suggest an LVR of 80% on both properties. I don’t know how you got 74% LVR.
Regarding whether to buy out West or closer in, I cannot help you here. This is a decision for yourself. Regarding living in your own property, this is your biggest liability. You need to do the numbers with your accountant to determine if you would be better off with the investment properties or living in your own home. It usually comes down to whether rental income from the investment property is higher than the rent you would be paying.
Also, living in it would result in losing all deductibility unless you buy in a company or trust name and rent from it. You would not have the benefit of rental income though to improve your cashflow if renting would be less.
Regarding both properties costing about the same, this is not right when considering the lost rent and deductibility. There will be massive differences.
I hope this helps.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksRegarding reverse mortgages, check out…
http://www.mortgagepackaging.com.au/tma/index_files/reverse_mortgage.htmI also know a guy who specialises in reverse mortgages. That is all he does!!! I would strongly suggest using him as he deals with the various lenders in the market and can direct you to the most suitable product. He is also a financial planner. These loans have very strict requirements with regards to independent advice.
Email me if you want his details.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksShould we tell the story of how it was that you became a moderator in almost every section? I remember that very well!!!
hehehehehehehehe
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksYou would be a certainty. Me on the other hand, I have just two chances…. BUCKLEYS and NONE!!!
I like getting banned too much!!!!
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksThe best wording on a signboard when selling privately is…
PRIVATE SALE
PHONE: XXXX XXXXSay it is a 3 bedroom house, I would suggest…
PRIVATE SALE
3 BEDROOM HOME IN ??SUBURB??
PHONE: XXXX XXXXPeople jump all over private sales because they think they can get a better deal. Nothing more need to be written.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential Links
