Mortgage Information

Getting a mortgage is the biggest financial commitment most people will
ever make in their entire lives. Not all mortgages are the same – far
from it, in fact. Navigating the wide array of mortgage products to find
that best suited for one’s individual needs can be extremely
overwhelming and even confusing to many people. That is why, if you are
buying in Perth, for example, enlisting the services of a Perth mortgage
broker is so highly recommended.

There are many, many different mortgage types. Each has its own unique
interest rate, fees, and level of flexibility. For example, interest
rates may be fixed, variable, or a combination of the two.

A
fixed interest rate loan involves paying a locked rate of interest for
between six months and five years. At the end of that term, the mortgage
holder has the option of refixing the loan or changing to a variable
loan rate. Repayments are exactly the same each month during the term,
and are not impacted in interest rates rise until the end of the term.
Disadvantages, however, include not being able to pay lump sums, being
stuck paying at a higher rate if rates drop, and paying fees if selling
or discharging the loan prior to the term ending.

Variable loan
rates are dependent on market changes in the Official Cash Rate.
Repayments thus rise and fall. This type of loan affords flexibility,
consolidation of debt, and currently, variable rates are quite low. When
rates go up, however, so do repayments.

There are also
different repayment structures to consider. Table loans, revolving
credit loans, reducing loans, and interest only loans are just the tip
of the home loan iceberg…

A table loan is a loan with a term
of up to thirty years. Initial payments cover interest, latter payments
cover the principal. Regular payments are predictable and suit borrowers
with a regular income.

A revolving credit loan involves income going directly into the
mortgage, and then bills and cash are taken from the account. Lump sum
repayments and large redraw of funds are available up to a previously
agreed credit limit. By paying down the loan as fast as possible,
interest payable is less.

A reducing loan has standard repayments with lowering interest with each repayment.

Interest only loans involve payment only of interest with the principal
never being paid. This frees up cash but means that the loan is never
repaid unless the property is sold for a profit down the track.

There are many other types of mortgages, including introductory rate
loans, construction loans, professional package loans, low-doc loans,
bridging loans, equity loans, and reverse mortgages.

Take our
advice – get a Perth mortgage broker to advise and guide you through the
minefield that is mortgage when you decide to buy a property in Perth.
You will be very glad you did.

When used properly and with correct planning a reverse mortgage can be a
useful tool for both the middle class and even wealthy borrowers. The
key lies in analyzing the borrower’s current needs and making the best
decision for them.

Typical Situation for Middle Class

Many people in the middle class work in a career for 30+ years and
retire in their mid to late 60’s with a home that is either paid off or
close to being paid off within a handful of years. Thankfully, paying
off the mortgage will free a sizable portion of their income.
Unfortunately, most people retire with a noticeable decrease in their
monthly income.

A reverse mortgage can help this situation in a
number of ways. The easiest solution is to borrow 65% to 70% of the
home’s value and receive monthly payments. The payments will usually be
enough to offset most of the loss in income. A second method is to get a
lump sum distribution and use the money to invest in safe resources
like bonds and low risk mutual funds that will yield enough interest to
supplement the borrower’s income. Other possible resources that can be
purchased would be rental property or a silent partnership in a stable
company.

Typical Situation for Moderately Wealthy

People that have been accustomed to a 6 figure job will find it
mentally and emotionally difficult to drop down to a slightly less
expensive lifestyle when they retire. Fortunately, these individuals
usually have homes that are in the higher price range of $400,000 and
up. With homes at these price levels it is possible to get a higher
reverse mortgage amount. The current maximum reverse mortgage amount is
$625,500 but that may likely change at the beginning of the new year
back to $417,000.

Even at the lower amount it is still possible for borrowers to get a
sizable loan and use it for investing purposes. Like the previous
example, the borrowers can use the money to invest in multiple ways. The
difference is that the bigger amounts would allow for a wider range of
diversity.

For instance, if a couple aged 65+ chose to get a $400,000 loan they could use the money in the following way:

Purchase a modest home for $125,000 and rent it out for $875 to $1125
per month, depending on the areaInvest $100,000 in bonds and mutual
funds that are yielding between 4% and 5% annually, resulting in $3,300
income per monthBuy a vacation home in the mountains or the beach that
averages $400 per month in rental incomePut $50,000 away in savings for
possible medical bills

Grand total of monthly income from investments: $4,575

As you can see, a reverse mortgage can literally change a person’s
financial status in a short amount of time and put them in a much better
position to live a comfortable life while also building up a sizable
nest egg to leave to their children.