Mondy Financial Services

A Reverse Mortgage is a special type of loan for those 60 years and over, using the equity built up in your home to turn into cash to use for whatever you want – i.e. holiday, living expenses, new car, renovations, health costs.

This seniors loan does not have to be repaid until you choose to sell your home or the last surviving borrower passes away. It does not require any repayments on the life of the loan but voluntary repayments may be made.

You can receive your money in a variety of ways – as a Lump Sum or have your own “cash reserve” limit which you can then draw down as you need the money, or a combination of both. If you have a mortgage on the property this may be able to be paid out for you.

The amount you receive will depend on the value on your property and the age of the youngest borrower. eg a 60 year old may only be able to access 15% of the value of the home where a 90 year old may access 45%.

The No Negative Equity Pledge ensures that you (or your estate) will not have to pay any shortfall difference between the sale price of your home and the outstanding balance owed when the home is sold.

PROS                                                                                                                    

  • You never need to make repayments for the life of the mortgage
  • You have increased cash flow to use however you want
  • Your credit line grows with time as you get older

CONS

  • The value of your estate will decrease
  • Interest rates and closing costs are quite high 
  • The balance of the loan grows with time as interest is added to the loan value

If you are receiving a pension you should seek advice to find out if it will be affected.

Note: This information is general, before acting upon any of these ideas you should seek professional advice to make sure it suits your personal circumstances. If you’d like to discuss options that could benefit you, why not contact me today on 0431 517 455 or email me at This email address is being protected from spambots. You need JavaScript enabled to view it..

Moving into an Aged Care Facility (nursing home) can be a very emotional time for both the family and the person making the move.

We can help with decisions regarding selling the home, renting the home, paying the full RAD or paying a part RAD, what to do with investments.

Aged Care costs are made up of 4 different fees

  1. Basic daily fee

A basic daily fee is used for your day-to-day living costs such as meals, cleaning, laundry, heating and cooling. Everyone moving into an aged care home can be asked to pay this fee.

The basic daily fee is 85% of the single person rate of the basic age pension.

  1. Means-tested care fee

Your aged care home provider may ask you to pay a means-tested care fee. This will vary based on your assessed income and assets

If you do not need to pay the means-tested care fee, the Australian Government will pay the full cost of your care.

There are annual and lifetime caps in place to limit the amount of the means-tested care fee you can be asked to pay. Once these caps have been reached, you cannot be asked to pay any more means-tested care fees.

  1. Aged care homes accommodation costs

Your income and assets assessment will determine if you will receive assistance with your accommodation costs.

Paying for accommodation

If you are eligible for assistance with your accommodation costs, the amount you can be asked to pay for your accommodation is based on your income and assets, and will be one of the following:

  • No accommodation costs: if your income and assets are below a certain amount, the Australian Government will pay your accommodation costs.
  • An ‘accommodation contribution’: if you need to pay for part of your accommodation, the Australian Government will pay the rest. You can choose if you would like to pay your accommodation costs by a refundable accommodation contribution (RAC), daily accommodation contribution (DAC) or a combination of both.

If you are not eligible for assistance with your accommodation costs and need to pay the full costs of your accommodation, you can be asked to pay:

  • An ‘accommodation payment’. You can choose if you want to pay your accommodation costs by a refundable accommodation deposit (RAD), daily accommodation payment (DAP) or a combination of both.
  1. Extra and additional fees for aged care homes

Extra and additional service fees may apply if you choose a higher standard of accommodation, meals or other care or services.

The Value of Financial Advice at this time?

Mondy Financial Services can do a strategy report showing the following:

Several strategy options regarding the family home and payment of Aged Care fees showing the effect over 5 years on:

  1. Cash flow
  2. Aged Pension payments
  3. Asset value after each year
     

This can help with decisions regarding selling the home, renting the home, paying the full RAD or paying a part RAD and what to do with investments. Some of our clients have saved tens of thousands each year having these figures.

https://www.myagedcare.gov.au/aged-care-homes/working-out-the-costs

 

What are these changes & why are they being introduced?

From 1 July 2019, new ‘Protecting Your Super’ laws come into effect. These laws include several measures designed to ensure that super account balances are not being unnecessarily eroded by fees and insurance premiums, particularly for accounts that have a low balance or have been inactive for a certain period.

One of these measures relates to automatic cancellation of insurance cover for inactive super accounts. These rules prevent super funds from providing insurance cover to you if your super account is inactive, unless you specifically elect to keep your cover. Under these rules, an account will be considered ‘inactive’ if it has received no contributions or rollovers for 16 consecutive months.

Important things to think about before deciding to keep, cancel or change your cover

Just like your home or car, your life and your ability to earn an income can be some of your most important assets. Having insurance cover may provide some financial protection if you are unable to work due to disability or if you die.

There may be some advantages of having insurance through your super, e.g. group premium rates may be more cost-effective than individual insurance rates, and paying for premiums through your super rather than your after-tax money may be tax-effective in some cases. However, it’s important to be aware that insurance premiums that are deducted from your account balance will reduce the amount of super that is available when you retire.

Your insurance needs can change over time so the cover you had in the past may or may not still be suitable for you today. For example, your needs for financial protection as a young single may be different to your needs if you have dependants or a mortgage. And if you’re downsizing or an empty-nester, your needs may be different again.

It’s important that you regularly consider and understand your current needs to make sure any insurance cover remains appropriate. This should include any cover for death and disability that you have through super, as well as any cover you have with an insurer.

It’s also important to understand the features of your cover, such as premium rates, when a benefit may or may not be paid, and exclusions that may apply. These features will generally be different between super funds or insurers, so you’ll need to consider what’s right for you.

You should also keep in mind that premium rates will generally increase as you get older.

 

 

From 1 July 2018, the Australian Government has introduced the 'Contributing the proceeds of downsizing into superannuation' (downsizing) measure. This measure is part of a package of reforms to reduce pressure on housing affordability in Australia.

This measure applies to the sale of your dwelling (your home), which was your main residence, where the exchange of contracts for the sale occurs on or after 1 July 2018.

If you are 65 years old or older and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your superannuation of up to $300,000 from the proceeds of selling your home.

Your downsizer contribution is not a non-concessional contribution and will not count towards your contributions caps. The downsizer contribution can still be made if an individual has a total super balance greater than 1.6 million.

Your downsizer contribution will not affect your total super balance until your total super balance is re-calculated to include all your contributions, including your downsizer contributions, on 30 June at the end of the financial year.

The downsizer contribution will also count towards your transfer balance cap, currently set at $1.6 million. This cap applies when you move your super savings into retirement phase.

You can only make downsizing contributions for the sale of one home. You can't access it again for the sale of a second home.

Downsizer contributions are not tax deductible and will be taken into account for determining eligibility for the age pension.

If you sell your home, are eligible and choose to make a downsizer contribution, there is no requirement for you to purchase another home.

Eligibility for the downsizer measure
You will be eligible to make a downsizer contribution to super if you can answer yes to all of the following:

  • You are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit).
  • The amount you are contributing is from the proceeds of selling your home where the contract of sale was exchanged on or after 1 July 2018.
  • Your home was owned by you or your spouse for 10 years or more prior to the sale.
  • Your home is in Australia and is not a caravan, houseboat or other mobile home.
  • The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset.
  • You have provided your super fund with the downsizer contribution form either before or at the time of making your downsizer contribution.
  • You make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually the date of settlement.
  • You have not previously made a downsizer contribution to your super from the sale of another home.

If eligible, you can make a downsizer contribution up to a maximum of $300,000. The contribution amount can't be greater than the total proceeds of the sale of your home.
Example 1
A couple sell their home for $800,000. Each spouse can make a contribution of up to $300,000.
Example 2
A couple sell their home for $400,000. The maximum contribution both can make cannot exceed $400,000 in total. This means they can choose to contribute half ($200,000) each, or split it – for example, $300,000 for one and $100,000 for the other.

Source: ATO website

This article was reproduced from the Dimensional Fund Advisers website. my.dimensional.com/insight/outside_the_flags

 

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