Many retired people find that they are asset-rich and cash-poor. They live in a valuable mortgage-free home but don't have a large income, often relying solely on their pension.
Selling the house and downsizing is one option. But people are sometimes reluctant to do this. The home has many memories and many of their friends live in the neighbourhood.
Reverse mortgages, or home equity release loans, are a product some banks are offering to retirees who find themselves in this situation.
It allows people to borrow against the value of the home, with no repayments of the loan or the interest, while the borrower lives in the home. The amount they are required to repay is also not usually more than the net sale proceeds of the property.
But people need to be aware of the risks - principally the effect of the compounding interest. Even though there are limits on the amounts people can borrow, the amounts can grow quickly.
Heartland Bank's online calculator allows people to calculate the potential repayment costs.
If a 65-year-old took out a $10,000 loan it would grow to $22,982 after 10 years.
Heartland's calculator uses the example of a $500,000 property, with annual capital in the value of 3 percent. So after 10 years the home is worth an assumed $671,958.
The homeowner's remaining equity would be $648,977 ($671,958 minus $22,982).
But if the homeowner borrowed $100,000, then the amount owed (including interest) would grow to $229,816 after 10 years. The $500,000 house would still be worth 671,958 ( assuming 3 percent growth) but the homeowner's remaining equity would be only $442,142.
Heartland told me that their typical borrower has a loan of around $40,000 and they are in their early 70s. They are generally using the loan for medical expenses, a foreign holiday, or for a car.
The banks also set limits on the amounts you can borrow (depending on your age).For example ASB says a 65-year-old can borrow no more than 15 percent of the value of their home.
There are also options for the borrower to guarantee they keep a certain percentage of the equity in the home (this is achieved by limiting the amount they can borrow).
Both Heartland and ASB require customers to get independent legal advice. They also recommend people talk to their family and seek independent financial advice.
A comfortable retirement
These loans are often used as a transition to the sale of the family home. People take out the loan for a few years before downsizing or moving to a retirement village.
It does raise a wider issue of how people go about enjoying a comfortable retirement, especially as life expectancies grow.
I think as time goes on we will also see more people questioning the assumption that they should "leave something for the kids". That's a noble thought, but only as long as the retired person is not going without just to leave something to their children. Why avoid turning on the heater in winter, or going without a holiday of a lifetime?
As more people downsize, perhaps more will decide to treat themselves to a trip of a lifetime. After all, parents have already raised their children, and given them an education and upbringing.
New car sales
April was another record month for new car sales in New Zealand.
The Motor Industry Association (MIA) says 2,915 new commercial vehicles were registered, the strongest April on record.
There were 6,375 new passenger registrations, giving a combined total of 9,290 units. It is the strongest April for all new vehicle registrations since 1989.The month was up 6 percent (561 units) on April 2014.
The MIA says for the year to date the market is up 7 percent (2,955 units).
Toyota was the overall market leader for April with 15 percent market share (1,414 units). It was followed by Ford with 12 percent (1,075 units) and Holden with 9 percent market share (839 units).
Toyota was the commercial market leader for the month, with 21 percent market share (620 units), followed by Ford with 19 percent (566 units) and Nissan third with 12 percent market share (347 units).
The Ford Ranger regained the monthly top-selling commercial model for April with 17 percent market share (487 units) followed by the Toyota Hilux with 14 percent (401 units) and the Nissan Navara with 12 percent market share (347 units). For the year to date, the Ford Ranger is the top selling commercial model with 15 percent market share (1,797 units) followed by the Toyota Hilux on 14 percent market share (1,699 units).
Sales of luxury vehicles are "lightly up" on this time last year.
The MIA. says sales of luxury cars are up 2 percent for the year to date and over the same period a year ago.
The end of the super cycle for stocks and bonds?
Respected bond fund manager Bill Gross has warned that the supercycle for bonds and stocks could be coming to an end.
But in his latest letter to investors the 71-year-old also contemplates his own mortality.
"All too soon for each of us, there will be 'great unrest' and a journey's ending from which we came and to where we are going."
He goes on to take aim at active managers and the fees they charge.
"Active asset managers as well, conveniently forget that their (my) industry has failed to reduce fees as a percentage of assets which have multiplied by at least a factor of 20 since 1981."
"They believe therefore, that they and their industry deserve to be 20 times richer because of their skill or better yet, their introduction of confusing and sometimes destructive quantitative technologies and derivatives that led to Lehman and the Great Recession."
"As it is, in 2015, I merely have a sense of an ending, a secular bull market ending with a whimper, not a bang," he said. "But if so, like death, only the timing is in doubt. Because of this sense, however, I have unrest, increasingly a great unrest. You should as well."
His latest investment newsletter can be found at janus.com.
Mayweather vs Pacquiao
Floyd Mayweather has collected a cheque for US $100 million dollars, following his vic tory at the weekend over Manny Pacquiao. That is just a down payment for what could turn out to be a payday for Mayweather of US$200 million.
The total revenue from the fight is still being counted, but looks like being at least US$400 million.
Politifact.com has pointed out that one fact mentioned during the fight is wrong. The claim was made that the revenue exceeded the GDP of 29 countries.
US$400 million is "larger than the annual GDP of 29 different countries", HBO boxing sportscaster Jim Lampley said during the broadcast. Politifact checked with The World Bank and found that there are only six countries with an annual Gross Domestic Product of less than US$400 million (according to the bank's 2013 ranking).
They are Micronesia, US$316 million; Sao Tome and Principe, US$311 million; Palau, US$247 million; Marshall Islands, US$191 million; Kiribati, US$169 million and Tuvalu, US$38 million.
Politifact says that the country with the seventh-lowest GDP is Tonga, with a GDP of US$466 million, just surpassing the estimated revenue of the Mayweather-Pacquiao fight. The United States had the world's largest GDP in 2013 - US US$16.8 trillion.
Many continue to debate whether the huge payday for the two fighters simply masks the real decline of boxing. They argue the era of the megafights is over, or at least it's disappeared for a considerable time.
Maury Brown thinks so - writing on Forbes.com that "play a funeral dirge for boxing. As hangovers are nursed today in Las Vegas, it is boxing that may have the largest. The ability to climb into relevancy was masked by one last glorious night where the stars came out and millions watched in anticipation."
3 News
source: newshub archive
