Financial Planning

Financial Planning page notes

Most of us fail to plan sufficiently for retirement. Planning seems too difficult, not important right now, or something we can’t afford, and retirement seems far away. But will superannuation and retirement scheme payments be adequate to support the lifestyle you would like for your retirement?

More than half of all people over 65 earn less than $25,000 a year. Many rely on the pension alone.

Owning a home in Auckland can leave you feeling “asset rich and cash poor”.

Depending on your circumstances and provided you’ve paid enough of your mortgage, you may be able to access some of the equity in your home to invest in a rental property as an investment strategy for your retirement.

There is a common saying in retirement planning: You can’t eat your house.

Lots of people think about the house they are living in as an investment.

But financial advisers generally say it’s not. While paying off a mortgage and having a freehold house by the time you are 65 means a much more comfortable retirement, just the fact of owning an expensive house does not mean you automatically have a better lifestyle.

Our team of experts can coach you through the process, explain the options and opportunities in a no obligation free consultation.

safe retirement

Lots of people think about the house they are living in as an investment.

But financial advisers generally say it’s not. While paying off a mortgage and having a freehold house by the time you are 65 means a much more comfortable retirement, just the fact of owning an expensive house does not mean you automatically have a better lifestyle.

Good financial advice should focus on our individual goals and current financial situations, and balance our short, medium and long-term needs.

Insurance help

Not sure what types of insurance, or how much, to buy? An insurance broker or financial adviser can help, or try talking directly to an insurance company.

An independent insurance broker will be able to offer the widest variety of products. They may also be able to help with making insurance claims.

Find an insurance broker on the Insurance Brokers Association website.

Bank staff and mortgage brokers can often provide quotes for health and life insurance.

Insurance guide

Advisers have to be one of the following:

  • A registered financial adviser, or RFA, who can advise only on simpler financial products, such as insurance, bank term deposits and mortgages.
  • An authorised financial adviser, or AFA, who can offer a much wider range of advice. AFAs have to pass exams about finance.
  • An employee of a Qualifying Financial Entity, or QFE. QFEs include the likes of KiwiSaver providers, banks and insurance companies. People who work for them can give investment advice, but only on the products offered by the QFE – unless the person is an AFA.
  • Both RFAs and AFAs are checked for past criminal conduct. They have to act in your best interests, exercise reasonable care, and not engage in misleading or deceptive conduct. If you are unhappy with anything they do, there are several steps you can take, including going to an independent disputes resolution scheme that’s free to you.
  • An AFA is best qualified to help you find the right investments – bearing in mind your total financial situation and how much risk you are comfortable with.

Investing advice

Financial advisers and share brokers give advice about investing in shares, bonds and sometimes property. They can help with finding us the right mix of investments. Some people also use financial coaches and mentors to help them get ahead.

If you don’t want to spend your twilight years worrying about money, you need to start planning now.

The difference between the value of your home and the amount owed on your loan is the definition of equity.  Your home is a tremendous asset and you may use this asset to free up cash for major expenses or to consolidate debts.

Does it feel as if you can’t keep track of all of your debt? Are you missing repayment dates? Do you need help reducing your debt? If you need to take control of your debt, a debt consolidation loan may be the answer.

Tap into the equity you’ve built in your home and do a “cash-out” refinance with us. In this scenario, you can refinance for an amount higher than your current principal balance and take the extra funds as cash. This can provide money for remodeling your home, paying off high-interest rate bills, or sending your kids to college.

What is a home equity loan?  A home equity loan allows you, the homeowner to get a loan by using the equity in your home as collateral. Your home equity is the percentage of the home that you own; it’s the difference between the current value of the home and the amount you still owe on your mortgage.

A home equity loan is a secured debt because it is debt against your own property.  Home equity loans have allowed millions of Americans to take control of their debt.

Home equity loan vs. Home equity line of credit

A home equity loan can be obtained in a lump sum or used as a revolving home equity line of credit.

Owning a home can leave you feeling “asset rich and cash poor”. Depending on your circumstances and provided you’ve paid enough of your mortgage, you may be able to access some of the equity in your home to do that home renovation you need to do, buy a new car, or even travel. Home equity release schemes let you turn your home’s value into dollars without having to sell-up and move. Read on to find out more.

Home equity loans

Depending on how much equity you’ve built up in your home, you may be able to access that equity through a home equity loan. You can use those funds to buy an investment property, renovate your home or book a family holiday. Typically, this type of loan is set up as a line of credit loan which allows you to withdraw funds up to a set limit, as and when you need to.

Interest rates are generally higher on line of credit loans, so it’s worthwhile shopping around or getting in touch with your mortgage adviser to discuss your options. Some lenders may offer better rates on these loans to encourage refinancing, so a financial health check of your current situation might help put things into perspective for you.

It’s a convenient and easy to manage type of lending as your loan repayments are all rolled into one, and the interest rate charged will usually be lower than that of a personal loan or a credit card. The downside is that if house prices go down you could end up with a loan that is more than what your home is worth.

In most instances, provided you owe less on your home than its market value and you have at least 20% equity in your house after you’ve taken out the loan, you can apply for this type of lending.

You can help build equity in your home by paying off your home loan faster, either by topping up your monthly payments or by switching to fortnightly payments so you effectively make an extra payment each year. Improvements to your home could also increase its value and subsequently your equity.

Reverse mortgages

Designed to help home owners over the age of 60 maintain a standard of living by releasing equity out of the home, a reverse mortgage lets you borrow funds using your home as security, effectively freeing up part of the value of your home without you having to sell it.

To qualify for this type of loan you must be at least 60 or 65, depending on the lender’s requirements, and you can only borrow a percentage of your home’s value. Your home must be mortgage-free, although you may be able to borrow if you only have a small amount left to pay towards your mortgage.

Generally, reverse mortgages come with a lifetime occupancy guarantee, which means you can live in your home for as long as you choose, and the lender gets the money you borrow back when your house is sold.  This type of loan also usually offers a “no negative equity” guarantee which means that you – or your estate – won’t have to repay more than what your house sells for. So you won’t be leaving your children with a debt if your house sells for less than the amount of the outstanding loan.

The money you borrow can be taken as a lump sum, drawn on as you need it, or paid out to you as regular payments; by only drawing the money as you need it though, you help keep the interest down. And the best part is you can use the money for anything you want – whether it’s a holiday, a car, renovations or repairs, a health-related cost, or just as a top-up to your regular income.

Interest rates are generally higher on these types of loans and you do need meet certain requirements, so it’s worthwhile talking to your mortgage adviser and getting independent legal advice before you make any decisions, to ensure you fully understand how a reverse mortgage works.

How can we help you?

There’s no doubt that accessing the equity in your home is not a decision made lightly, and it will take serious consideration and investigation into the options. If you’d like to find out more about a reverse mortgage or about accessing the equity in your property by refinancing or through a home equity loan, get in touch with one of our advisers today.