Andrew Knight

Some Important Reverse Mortgage Information

Reverse mortgage loans were introduced in the United States in 1989. Since then, almost 20,000 seniors in the country have acquired reverse mortgage loans. This article would give you some important reverse mortgage information.

Reverse mortgages are also termed as home equity conversion mortgages. In case of a reverse mortgage, home owners are able to keep the ownership of their houses and at the same time, receive a lump sum payment, or in some instances, a monthly payment from the lender. If the home owners shift to another place or expire, ownership of the house is obtained by the lender unless the elderly borrowers or their inheritors repay the loan. The home owners also have the option of selling the house and use the sale proceeds to pay off the lender.

Obviously, reverse mortgages are not meant for everybody. They might turn out to be expensive and a senior home owner might only find out 30%-80% of his home’s value with a reverse mortgage. The service charges and closing costs related to a reverse mortgage may vary from 20 dollars to 30 dollars every month. Some reverse mortgages bear adjustable interest rates and some fixed interest rates. Reverse mortgages are offered to you in various forms. You can get reverse mortgage information from different websites including FHA (Federal Housing Administration) and HUD (Department of Housing and Urban Development).

You may have heard the expression “there is good debt and bad debt” and this is a very true statement but do you question what is good debt and what is bad debt? That’s something I’m answering today, helping you understand simply the importance of both and how it affects your finances and so forth.

Bad Debt

Bad debt can be derived from purchasing liabilities, things that don’t generate an income for you, won’t pay for itself down the long run. A car is a perfect example of this, you take out a loan, pay x amount of interest over 10 years and then you get hit with on road costs, services and other fees - taking money out of your pocket, not putting money in. Don’t be fooled, this can also apply to houses if you don’t do your research. Another example is a credit card, instant money people take for granted without using it properly. Unless you are levering your money using a credit card, you’re actually stacking bad debt onto it, forcing it to work against you like speeding up a timer on a bomb. In order to keep out of bad debt, you need to understand the importance of keeping out of it, making sure you’re ahead of the game, unlike many in society today.

Good Debt

Good debt is utterly important as it opens the doors of passive income to you if done properly. Before banks lend money out to a customer they assess the persons financial status. For example, how much they earn per year, what assets do they own, other sources of income and their credit history. If this strict criteria is met, then it’s a green light to lend and this would be classified as good debt. However, if the bank lent money out to someone who couldn’t afford the repayments on time, had no financial history or income, then they are taking a high risk and it becomes bad debt, much more risk involved.

In order to generate a passive income, you need to purchase assets that will automatically make money for you, however not everyone is born with a million dollars so how do you ‘afford’ these assets? You need to borrow money, leverage it and manage it effectively. Let’s say you found a house, the house was $50,000 and you only had $30,000, you would need to borrow the extra $20,000 to purchase it. Before you do, you need to consider if this will generate more income then the expenditure. So if your loan repayments was $300/week and you were renting it for $400/week, you are making $100/week in passive income, allowing you to pay off the loan much quicker. However, if the house wasn’t paying itself off by its own income, then it would be classified as a liability, something that is taking money out of your pocket and putting it into the banks. There can be exceptions, different investments require different levels of money however, research and planning is critical, making sure your projected income is rock solid.

The more money you put into the house, the faster it gets paid off, the less interest and more profit. This allows you to invest into more ventures by using the equity in the house. This of course applies to all investments and there will always be risk, the idea is to minimise it as much as possible.

The above has been based on knowledge I have learnt from experienced and knowledgeable people such as my Dad and Robert Kiyosaki. Please remember I’m not a financial advisor nor do I ask you to follow my advice, if this ever proves useful, please share it as we all should live in abundance.

Consumerism has hit me hard recently, making me get on my knees and grovel for a popular materialistic item, the iPod Touch - 2nd Edition. Even with our current economic situation with world debt being increasingly high and money dropping in value by the hour, the iPod is still referred to as an liability due to the fact it’s not making me any money and posesses the possibility of breaking down in some way.

I have lost some money surplus by giving in to my feelings which has been invoked by multiple things like incredible marketing. Not to mention, my own desire to hold something which has been beautifully crafted to perfection, with a sleek steel case and a 480×320 touch screen - it’s pure all over.

Pushing that aside, I will now be adding money to a personal fund, details I can’t exactly disclose however I can assure you it’s beneficial to my future and will secure profitable ventures - exciting! I will be removing my saving bar and replacing it with a new bar representing the money added to the fund, named “Success Fund”.

Is this how we are being brought up? Learn how to drive in your parents car, get your license, find the car of your dreams and get a car loan, then spend the next 10 years paying it off. I’m not one to judge, however I do find it intriguing how much we as a nation have changed over the years. Back in the industrial age you would either get your pops truck or work hard and save your money, and then purchase a car in full, most likely it being a used one for your first car. Now it’s sign on the dotted line, get now and pay later with interest, not to mention their hands just inches away from crushing your throat if you refuse or “forget” to pay. Should this be the way, should we teach our kids to have now, before earning it and understanding appreciation?

Personally, I don’t drive as yet however, I see logic in saving up a few thousand to buy your first car out in full. From my readings and understanding, chances are most young adults will “accidentally” forget to pay on time and will get slapped with a hefty bit of interest. Don’t get me wrong, credit in this world is not only needed but it’s important to wealth. I just feel we as consumers rely on credit cards and personal loans too much because we have this mindset of “want now” and as you can see, this has clearly caused trouble.

A car loan would be beneficial if claimed under a business as it would eventually pay itself off. From my point of view, you should only consider applying for a car loan when you have the following Why, What, When and How worked out:

1. Why do you need a car loan? - This is a serious question, think outside the square for a moment.
2. What car loan suits you best? - Many to choose from, find which one works for you.
3. When will it be paid off? - Knowing a rough estimate on when it will gives you a goal.
4. How much interest will you be paying? - 5 years might be easier for you but harder on your pocket in the long run. Think this through.

Most people will act on their emotions - i.e. want now - and not consider their current circumstances. By analysing your situation, how much you can afford and how quick you can pay it off, your removing your natural emotion and starting to think like the rich.

If you need a car loan, I would recommend comparing various car loans to find the best one which suits you. You can do this by visiting http://www.carloan.com.au - you can compare and apply for a car loan online.

UPDATE: Interest Rates have officially been cut by 0.75 percent, leaving the current interest rate at: 5.25%

Where money is being splashed around, being lost and being gained, the Reserve Bank of Australia will be meeting with the focus on cutting interests rates by another 0.5 percent. This of course isn’t certain, only theory by economists not to mention ANZ, CommSec, AMP and Austock’s Michael Heffernan predicting the cut. However, Mark Dutton spoke for most experts suggesting the slow economy would push the RBA into cutting rates between 0.5 to 075 where as Robert Camilleri of Aviva Investments was more optimistic, saying he believed the banks would cut rates by 1 per cent.

An interest rate cut is of course vital in our economy though it’s uncertain how much improvement this can do to the economy, asking questions like how much would rates fall. According to News.com.au, a rate cut of 0.5 percent would would lower payments on a 25-year mortgage of $250,000 by about $85 a month, meaning more money for necessities like groceries.

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Information: News.com.au

I have read many personal finance blogs, most discussing about being frugal and saving money, but is this the option? Should we all take every cent and stash it under our bed until it becomes noticeable? I don’t think so. There is a difference between spending money and spending money wisely. We’ve been brought up in a consumer world, buying our flat screen televisions, luxurious cars and beautiful homes and receiving a letter in the mail informing us have we forgotten about the bank. Many haven’t realised how much debt we as a world have accumulated and in some sense, this whole credit crunch and lack of funds have made people understand and appreciate money even more. I’ve been taught to only buy what you can afford and save the rest. There is no need for luxurious items when your young and free or old and wise for that matter. However, life pressures get to us and it gets harder and harder as we go along and that piece of plastic saves the day to buy that nicety to live comfortably, or so you think…

So ask yourself, what do the rich do? They use credit cards but why aren’t they are debt? Well, they may be in debt to a certain degree, but this is referred to as ‘good debt’ and is managed properly. Credit cards are simple tools used by the rich whereas the poor use them as instant money and this is where we, as a nation go wrong. We have developed this mindset of using someone else’s money to stroke our own greed and not using our own. More or less, to have now and pay later. Sure, credit cards are great — in fact, they are one of the best tools you can use, however many aren’t taught this and get swooped into spending what’s not theirs.

Technically, money is worthless but what it represents, makes our world go round and until you inhabit the fact that money means nothing, you will always be emotionally attached, therefore money controlling you and your life. So what do I suggest:

• Spend what you can afford - never overbuy
• Don’t skimp on important necessities like fresh fruit & vegetables.
• Think abundance, believe everything is within your grasp but don’t be greedy
• Put money aside when you can but don’t be a scrooge.
• Relax and enjoy money. It can bring happiness, but that’s up to you.

The worst thing you can do now is pull all your money out of the bank. Our Australian banking industry & economy is strong by all regulations that have been put in play over many decades. If everyone pulled out their money, how would the economy survive, on bread and water?

At the end of the day, you will do what you want though I would recommend just thinking about your current situation. Sit down outside, enjoy the sun and fresh air and think of what to do next. Thinking on emotion is the worst possible way, it will always lead to mistakes…

The US economy has been in turmoil for much longer than most actually know. Dating back to the horrific event of 9/11, the US have never really recovered to a feasible level and ever since, has been on a slow downward slide. Financial advisors yelling and screaming about this current time wasn’t enough for people to realise the possible catastrophic effects it will have on the economy, and ultimately on themselves. The US being the strongest economy for decades distilled comfort in most which has made people simply not acceptant of the possibility of a crash. Though, as many still fail to realise, a lot of life events are still connected with physics with the popular saying going, “What goes up, must go down”.

So how does this affect us Aussies? Well, unfortunately it has already effected us very hard but all hidden below the surface. The Reserve Bank of Australia (RBA) firstly cut interest rates by a whole 1% to help inflation, though the banks only declared a 0.8% cut, holding onto their “well earned” money. To non-financial savvy people, this means, they simply don’t wish to get into bad debt. I’ll give you a short explanation:

Firstly, a bank in Australia will borrow money from a large corporation (e.g. US Bank) at a specific interest rate for a particular term, like 5 years. They then loan that money to consumers (us) at a higher rate in order to pay back their loan and make a profit. However, as many know there is good debt and bad debt and unfortunately, much bad debt like Lehman Brothers is floating around. Large corporations with good money surplus don’t wish to loan their money around as it can easily become a liability and turn into bad debt.

If you have recently gone into a bank to apply for a loan, credit card or a new bank account, you would’ve noticed new “restrictions” and the possibility of being declined far greater. This has been put into play to only allow people with the proper financial backing to become eligible. You might have certain assets which are valuable to you, however they could be easily deemed liabilities by your bank, depending on circumstances. A good explanation of assets vs liabilities can be found here.

So in result of the US economy crashing, the biggest economy in the world, other countries will of course follow suit. Our dollar hit a 5 year record low of 0.65 cents (0.6584) to the US dollar.

As you can see above, just before 6AM, it hit the record low and then climbed strongly from thereon, nearly hitting 0.68 before finishing just under 0.67.

Kevin Rudd and 20 finance ministers are working with Washington to provide relief to the Australian economy. More can be read at the Sunday Morning Herald here.

All I can suggest is to be cautious, not frugal. As history repeats itself, especially like in this occasion (1980 recession), we will eventually get through it. We will live and evolve into a bigger and better world…

Stay tuned for more updates.