What is a Reverse Mortgage and How Does It Work?

A reverse mortgage has only been a form of home equity lending since 1989 when it was first offered. The idea is that it provides a federally-insured way to release some of the value stored in your home equity without needing to move out or sell up right away.

A stream of income, line of credit or a lump sum is paid to the borrower using the home equity conversion mortgage (the other name for a reverse mortgage). It is repaid after selling the property or through probate following the death of the homeowner(s).

Who Is Best Suited to a Reserve Mortgage?

You must be a homeowner and 62 years or older (the youngest person with a couple is counted). As the loan repayment is triggered following a sale of the property, it’s best that you plan to stay in the home indefinitely. Usually, but not always, this type of loan is taken out by pensioners and people looking to shortly retire who would like to release some of the equity in their home without needing to move out and downsize.

It’s possible to sometimes use a reverse mortgage to clear a minor outstanding balance on an existing mortgage to smooth the way to retirement years. However, bear in mind that an application through leading provider American Advisors Group requires passing a credit check.

Could I Receive an Income or a Lump Sum?

When you have a fixed interest rate mortgage, then you can only get a lump sum payment with a reverse mortgage. However, with an adjustable interest rate mortgage, there’s the choice of a line of credit, a lump sum, a fixed monthly income, or a mixture of these.

How Much Can I Borrow?

There is a HECM limit for these types of mortgages currently set at $636,150. However, should the appraised valuation be lower, then this is used instead. The homeowner can review what percentage of their home they wish to use for a reverse mortgage – essentially, how much they’ll give away and won’t be eligible for future inheritance for their relatives. Therefore, the amount depends on the valuation used and what percentage ownership is borrowed against.

Also, different lenders charge an interest rate that could vary depending on the applicant(s) credit score or mortgage type too. If you’re having a hard time figuring out the rates and the available values you can get for your reverse mortgage, you can opt to make use of a reverse mortgage calculator in order to get a clearer idea on potential valuations.

Final Thoughts

A home equity loan is a useful financial lending option for homeowners who are old enough to qualify and who do not mind borrowing against the value of their home. It can certainly bridge the gap between the income needed to fund retirement needs and not having enough. Interest rate costs do reduce what is received from the equity in the home upon sale, but this is a reasonable trade-off to avoid the expense of selling up and relocating or downsizing to get some extra cash to live on in your silver years.

In most cases, it’s recommended by financial advisors to tap other sources of income before taking out new lending agreements. This is sensible advice as you’d expect from these types of advisors. However, few financial advisors have ever lived off their own investments in retirement, so their word is certainly not gospel! For homeowners who wish to retire slightly earlier or in greater comfort, then a reverse mortgage is a good extra option to have available that didn’t even exist that long ago.

The Pros And Cons Of Self Invested Personal Pensions

What’s A SIPP?

There are different kinds of personal pensions available in the UK nowadays. A self-invested personal pension (SIPP) is one of a very specific type. I’m going to explain this by comparing it with a standard pension fund. A standard pension fund is supported by investments. They’re managed by the company in which the pension fund is invested. .A SIPP, however, is quite different in type. In a SIPP, the owner has complete freedom to choose their investments. If the pension owner has a sound knowledge of investments, the results could be excellent for all concerned

Want a SIPP But Have No Trader Knowledge?

But what about those of us who appreciate the advantages of a SIPP account but don’t have trader knowledge? We’d still like to invest our pension funds in stock trading when the market is advantageous. We would totally enjoy seeing our pensions grow. Is there a way for us to do that? The good news is, that there is. We can set up a Sipp account in a secure finance company like Moneyfarm. Someone with that expert knowledge can invest that pension fund on our behalf. What could be better?

SIPP or Standard? Which To Choose?

Both SIPP and Standard pensions have the advantage of tax exemption on contributions. But in the case of the SIPP, you have much more control over the place where the funds are invested. Either you or your SIPP manager can take advantage of favourable conditions in the investment world. This will boost your pension fund as well as giving you immense satisfaction. Your SIPP has the capacity to become much more prosperous than a standard pension could. This would be due to good investment choices.

Disadvantages of SIPPS

If one has some expertise and a flair for investing wisely, then the SIPP is an ideal choice for a personal pension. However, it must be remembered that nothing is guaranteed when it comes to investments. If there is a slump in the investment market, the SIPP may not prosper. This is true whether the investments are made by you or your pension manager. Any losses would be borne entirely by the SIPP owner. Also, depending on the pension provider, there are various charges attached to SIPPS. There are annual administrative charges. There are also trading charges. The fund manager may also charge an annual fee. None of this is a problem if the SIPP is performing well overall. The extra charges will be absorbed easily, in that case. But if the SIPP is not performing well, these charges will be a burden for sure.

Why Some Economists Are Calling For Higher Wages To Reduce Australian Debt

Some economists have suggested that the current rate of household debt in Australia is 100% of the GDP. In ordinary terms, that means statistically, every Australian household has a certain level of domestic debt. This debt ranges from mortgages and car loans to credit cards and student loans. These loans have the potential to become unmanageable.

Because of the volume of debt, mass defaulting can cause an insurmountable economic crisis. The nature of economic crisis can be difficult for the ordinary person to understand, but it is primarily driven by interest rates and cash flow. When lending rates are low, a lot of people take loans. They assume they’ll have a way to keep up with their repayments.

There are two other ways that debt sneaks up on you. College and university students sometimes take loans to get through their course. They need cash to pay their tuition fees, buy books, or rent learning materials. Sometimes, the loans help to supplement their living costs. This becomes necessary because students can only work a few hours as they study.

Many students take loans because they think once they graduate, they’ll get jobs and quickly pay it off. However, once they’re in the job market, things change. They may not earn as much as they thought they would. Or they may have a comfortable living, but they somehow neglect their loan. It may not be deliberate; it could be a genuine oversight.

It’s easy for a small loan to slip your mind because you have bigger expenses. However, the longer you wait before paying it back, the higher interest rises. Sometimes, the interest rates end up being higher than the loan itself. At that point, the loan becomes virtually impossible to keep up with. The school may end up requiring a debt collection agency to recover funds.

Credit card debt piles up similarly. The way credit cards are set up; you can use them to pay for goods and services. It can be easy for consumers to overspend because all they have to do is swipe their card. They might not know how much money they have used. The trick with credit cards is the high-interest rate.

If you pay the card back within the required period, there will be minimal charges. But as long as it stretches beyond the stipulated time, the rates start to rise. Once they start going up, they soon get out of hand. Your credit card debt affects your credit score, and this makes it harder to get other forms of financial support.

A lot of people don’t consider credit cards as part of their debt. But literally speaking, whenever you swipe your card, you’re using cash that you don’t have on you. It’s often cash you don’t have in your bank account either. So you’re borrowing money from the bank and using it to pay for your purchase. You will be expected to pay the bank later.

The reason so many people get into credit card debt is that it’s ridiculously easy to get a card. It’s common to get a card in the mail even if you didn’t ask for one. And once you start using them, you soon get used to the pleasure and ease of swiping. The bills gradually pile up as you stretch your credit levels.

Once you reach a certain level, it’s easy to sink under the burden of debt. With 100% of households facing some kind of debt, the average Australian is always one pay cheque away from bankruptcy. This puts the entire economy at risk because if every household defaults, it will affect the movement of cash within the country and can crush all sorts of businesses.

For many Australians, their jobs are the only way they make money. They don’t have access to inheritance or passive forms of income. That’s why economists believe it would be a good idea to raise the average wage. If citizens earn more money, it would be easier for them to repay their debts, and less likely to default.

However, the rise in wage would have to go with a change in behaviour. For some people, having more disposable income would invite them to hike their spending, especially on their credit cards. But from an overall perspective, having more access to cash means having an easier time paying your debts.

On the other side of the equation, when your debtors begin to avoid you, it may be time to get some professional help. In the old days, it might help to hire a goon and have them pursue the debt on your behalf. Nowadays, debt collection is an entirely different industry.

It’s regulated by the Australian Securities & Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC). These institutions protect debtors from harassment by debt collectors. As a business, it’s best to get a reliable debt collector that abides by legal requirements. This makes life easier for everyone.

Top 4 Ways of Money Making Online that Don’t Work As Advertised

Using the internet to make money – this is something most of us would like to do. And there is an incredible variety of websites and blogs showing us “tried and tested”, “foolproof”, and “working” ways to make a bit of extra income over the internet. Unfortunately, there are many that simply sell snake oil, advertising methods that might seem a great idea but don’t work as advertised. Here are a few of them.

Playing games of chance

If you ever spent time reading Candian casino reviews you probably stumbled upon stories of how this player or that won six-figure amounts at a gaming outlet online. And you have no reason to doubt them: people do win at casinos, both online and in real life. But there is no way you can turn playing games of chance into a reliable source of income – these games are simply too unpredictable.

There’s nothing wrong with playing a few hands of blackjack and a few spins on a slot machine every now and then – relying on them as a way to make money is, in turn, a mistake.

Responding to surveys

Responding to surveys online is, indeed, a legitimate way to make an extra buck or two – and just about that. Of course, a lot depends on where you live. Some online survey outlets will ask you to complete one or two a day, others will only send you weekly surveys and polls, and there are some that don’t even do that. And the amount paid for each individual survey is usually pretty small.

Blogging for money

Creating your own blog and using it to generate some extra income can work – but you have to dedicate a lot of time and effort to build it up to a state when it can do that. The number of active blogs – with at least one post a month – is expected to exceed 31 million in the US alone in the next couple of years – standing out of such a crowd is not easy at all. And a blog has to have at least a pretty decent following to be able to make money from advertising and affiliate marketing.

Yes, blogging can indeed make you money – but you need to dedicate quite a lot of effort (and money) to it first.

Freelancing

Another viable way to make a living online that needs more time and effort than advertised. A freelancer is constantly fighting the competition for gigs (and there is a huge competition out there, trust me). Jumping into freelancing is not an easy task either. You have to work a lot until you can build your clientele that will ensure a constant flow of gigs – and revenue.

Things You Should Know Before Investing Offshore

Offshore investing may be deemed as deposits or investments held in jurisdictions other than that of one’s residence. Such investments may be considerably more complicated than local investments due to a number of factors as highlighted below:

Risks Unique to Offshore Investing

  • Forex risk

This is the risk attributable to the variation in exchange rates in currencies. One’s foreign-denominated assets may enjoy capital gains but may result in losses when those prices are converted back to the domestic currency.

  • Information asymmetry on the part of the investor

This simply means that you, as a resident in your domestic country, may not know what exactly is going on in another country (in which you have acquired assets) and as such cannot make appropriate investment decisions with regards to these foreign countries.

National Policies affecting offshore Investing

Offshore Investment Allowance

This refers to the maximum allowable amount can have in offshore investments. Typically, most countries cap this amount so as to prevent criminal activities. This was a counter measure to gangs and outlaws who would move illegally-obtained money to other jurisdictions and effectively erase their paper trail. In order to stay within the law, it is advisable for one to consult their local bank, broker or some other credible source of information for this. The last thing you want is to be on the wrong side of the law!

Tax Implications

Offshore investments have quite a bearing on one’s tax obligations. Typically, an investor is liable to paying the following taxes:

  • Capital Gains Tax – this tax is levied on the profit an investor gets when they sell an investment
  • Income Tax – this tax is levied directly to one’s personal income
  • Estate Duty – also known as inheritance tax, this tax is levied on the estate of an individual who has passed away.
  • Withholding Tax – this tax is levied by some countries on interest or dividends paid to an investor who resides in another country

Locally – denominated investments typically have the simplest tax obligations when it comes to the aforementioned taxes. However, when investing offshore one may be liable to paying all these taxes both in one’s local country as well as the foreign country.

Firstly, one may want to consider making offshore investments in countries that may be described as low-tax and/or zero – tax jurisdictions. Such countries are known as tax havens. Examples of such jurisdictions would be Luxembourg, Bermuda, Chanel Islands, Dublin and Lichtenstein. Investment in other countries such as Britain, France and the US are subject to tax within those jurisdictions.

In addition to this, there are plenty more opportunities for tax planning when it comes to one’s foreign investments. One such opportunity would be the establishment of offshore trusts. In certain jurisdictions, foreign – denominated offshore trust investments can save one tax. For instance, a UK domiciled settlor may have an offshore trust operating as a tax shelter specifically if the offshore trust is established for the benefit of their grandchildren.

How much should one put into their offshore investments?

There is a wide variety of views on how much one should ideally invest. One method of determining the optimum amount one should invest is by coming up with an efficient frontier graph.  The efficient frontier is the set of optimal portfolios that offers the highest expected return for a given level of risk.

However, a simpler method of determining your optimal investment may be analyzing the impact of exchange rates on your living expenses. For instance, how will the fluctuations in the exchange rate affect the cost of gas? You may want to reduce/increase your offshore investments to hedge yourself against unfavorable exchange rate currency fluctuations.

Small Business Basics You Need to Know

Now that you have your investors lined up and your plan in is motion, it’s time to start your small business. Unfortunately, a large number of startup companies don’t make it past their first two years of being open. There can be a myriad of reasons and factors as to why a small business doesn’t succeed, but at the end of the day, it comes down to how well the business is run. If you’re about to get your company off the ground, here are some of the small business basics you need to know to be a success.

You’re on Your Own

Starting a small business is a huge risk. According to the Small Business Association, 30% of small businesses fail within their first two years and 50% fail within their first five years. Of course, there are a variety of factors that help determine the success of your small business, most of which are directly influenced by your choices. One of the biggest mistakes people make when launching their startup is quitting their current job. It’s risky to leave your source of income before your new business has been on a positive trajectory for at least four or five years. It might not always be possible to pursue both ventures at once, so if you do quit your job to pursue your dream, make sure you have a backup plan or safety net in place.

Bookkeeping is Essential to Success

Many small business owners fail to keep their finances in order and properly managed. Budgeting takes a backseat, a few splurges are made, and before an owner knows it, they are so far into the red that they can’t get out. Business accounting services from Community Tax are a great way for a small business to keep their finances in order and stay out of trouble with the IRS. Allowing a third party to manage your business’s financial accounts will not only take a load of work off of your plate, but can also better ensure the safety of your startups success.

Research Your Competition

You don’t need the read The Art of War to understand the importance of knowing your competition. The latest technology, a new recipe, successful business practices, are all perfect examples of what you have to gain from your competition. Before you open your doors, take a tour of every business in your town or city offering the same services or products as your business. Find out what’s working, what’s failing, and what you can do better.

Location Really is Everything

You’ve probably heard the phrase, “Location, location, location”. There’s a reason it’s one of the first things people say when giving advice on starting a small business: it’s true. Every city has a piece of commercial property that constantly changes ownership and sign names. Most of the time these business simply cannot sustain themselves due to the poor location due to high rent, low foot traffic, inaccessible parking, and so on. When planning out your small business, make sure you’re getting the best possible location you can. For any customer-based service or product that requires significant exposure, prime location is will be incredibly important. However, you shouldn’t break the bank to lock in a commercial property. One way to avoid this predicament is to sell your goods entirely online or opt for mobile food trucks or catering if your small business is within the food and beverage industry. You’ll save yourself money on rent and avoid the risk of picking a location with high turnover rates.

Start Small and Grow Slowly

So many businesses try to start out too big because they overestimate their clientele and profit potential. What may have worked incredibly well in your dad’s garage may not translate to a large commercial space downtown. If you do operate out of a physical location, start small leasing a large commercial property you can so you can get a feel for the market and expected revenue. Don’t begin taking loans out for expansion until your business has started turning a profit and paid back most, if not all, of any outstanding debt or loan.

Keep these important small business basics in mind and you can avoid becoming just another statistic.

5 Tips to Protecting Your Assets Against Fire

Protecting your assets, property, employees, or residents is the top priority for any business owner. That’s because fire can have a devastating effect on any enterprise in many different ways. Apart from causing damage to property, a fire can lead to injury or even death. It can also cause an extended downtime for your business, leading to loss of revenue.

Chances of this happening to you may be slim, but it always pays to be ready for anything. That’s why it’s vital that you take all the necessary steps to protect your assets against fire. A good starting point would be to bring in fire safety professionals to implement fire prevention measures that are suitable for your business. Apart from that, here are 5 other tips that can help you protect your assets from fire damage:

  1. Focus on Fire Prevention

The best way to reduce the risk of fire in your business is to be proactive about preventing fires from breaking out in the first place. To do this, start by encouraging your employees to clean up the office space and reduce any clutter. Doing this will remove any extra material that could provide fuel for a fire.

Another great way to prevent a fire is by prohibiting the use of candles or space heaters in the space. This is important because the top cause of many office fires are space heaters that have been left on overnight.

You should also work with expert safety vendors like Parr Fire Protection Services to ensure that all your assets are safe and protected. These certified professionals will be able to perform a fire hazard analysis, showing you any fire risks that you may be vulnerable to. They can also suggest viable solutions and help you implement them.

  1. Install a Fire Alarm

In case a fire does happen, it’s important to have a properly installed and operational fire alarm system at your business. This will ensure that your employees and the proper authorities are notified at the right time. After all, prompt notification can greatly reduce property damage and injuries in any fire.

You should also ensure that all employees are properly trained on how the fire alarm system works. Everyone in the office should know how to activate the fire alarm manually when necessary, and how to exit the premises to reduce the risk of injury.

  1. Get the Right Equipment

It is vital that any business invests in the proper fire safety equipment. This includes things such as fire extinguishers, sprinklers, and fire suppressants. All of these should be properly installed and monitored to ensure that they are always in good working condition. As long as they work correctly, such systems can help save lives and minimize damage in case of a fire.

Since this is so important, it’s essential that you hire experienced professionals to ensure that the job is done right. Apart from installing these systems, the pros will also ensure that all equipment is in proper operating condition and compliant with all the relevant fire codes in your area.

  1. Routine Inspections

While having the right equipment is essential, it’s also vital that they are inspected and monitored regularly. This will ensure that, should a fire break out, all of your fire-fighting tools will work as required.

  1. Formulate an Emergency Plan

Whether or not a fire emergency strikes, ensure that your company has a detailed emergency plan in place. Furthermore, ensure that all of your employees know how to execute the plan effectively. You could implement regular fire drills to ensure that everyone is on the same page.