How can you avoid mortgage stress?

Ask Noel illo for Sept 27, by Simon Letch.
Ask Noel illo for Sept 27, by Simon Letch.

You recently wrote an article on mortgage stress, and ways to avoid it. Can you suggest anybody who could help a family who are in trouble now.

Think about financial counselling which is an option for consumers struggling with mortgage payments. It is a free service funded by state and federal governments, and is open to anyone who is struggling financially.

Their people tell me that they see people from all walks of life and include consumers who have debts due to over commitment of spending or borrowing, who are going or been through relationship breakdowns, sickness, DV or loss of income due to redundancy, unemployment or under employment.

Financial counsellors are non-judgmental, qualified professionals who provide information, support and advocacy to people in financial difficulty. Best of all their services are free. You can find a financial counsellor through the National debt hardship line 1800 007 007 or visit the website http://www.ndh.org.au/

We intend changing the trustee structure of our SMSF, from individual to corporate. Both of us are over 65, retired and in pension mode. The super fund name will not change but the bank accounts and holding accounts will have a name change. Will this trigger the loss of our Commonwealth Seniors Health Card (CSHC)?

Under the income test for the CSHC, if you are only changing the trustee structure of your SMSF, and it does not result in a change to your account-based income streams or adjusted taxable income, there would be no change in the Department's assessment of your CSHC eligibility.

My children are six and three respectively and we want to start a savings plan for them. We have thoroughly researched the pros and cons of buying shares in my name or their name using a regular savings plan and the found the tax implications too costly in our names even with franking credits (given we have two positively geared investment properties and several casual jobs including full time work).

We also looked at insurance bonds but were not keen on paying the 30% tax and the management fees. Even though there is no CGT and it is tax free after 10 years.

We are considering opening two superannuation accounts even though they cannot access the funds until the age of 60 or more.

No tax is payable on the contributions and only 15% tax is payable on earnings. The whole purpose of this savings plan is to teach my kids the discipline of savings and the magic of compound interest.

Is this a viable option ?

I prefer insurance bonds about which I have written extensively in the past. They are similar to superannuation as far as fees go, and the choice of assets in which you can invest. The major difference is that superannuation funds pay income tax at 15% per annum while insurance bond funds pay tax at 30%. Therefore, as you intend to invest with after-tax dollars, the only real difference is the 15% tax differential.

I believe the ability to access the bond whatever you wish, the fact they can be transferred to another person free of capital gains tax makes them a much better option for the task you have in mind. You could set a goal to use the proceeds for the University fees, and keep them closely involved as their value grows and the time for redemption gets closer.

My husband and I are soon turning 65 and are currently creating a two lot subdivision of our matrimonial home which we will remain in. We have the groundwork set to subdivide if we ever need the money as we age. We do not yet intend to register the extra block with the Lands Dept as currently there is no life on the Subdivision Certificate already obtained from council. This means we do not have to complete the process unless we choose to do so. Currently our assets qualify us for the Aged Pension but if we finish the subdivision and register the block we will not qualify due to rapid increase in property prices. Could Centrelink regard our situation of intention to subdivide as a current asset given the subdivision process has already commenced though not completed.

A Department of Human Services spokesperson says that only the principal home of an Age Pension recipient and their partner is exempt from the asset test. The exemption for the principal home can include the land on which the house stands, so long as the land is on a single title and does not exceed two hectares.

The department will only consider subdivided land as an assessable asset from the date of registration of separate titles. Following the registration of the separate titles the department will treat the principal home and surrounding 2 hectares (if applicable) as an exempt asset, and apply the market values of land and structures on the respective titles as assessable assets.

This story How can you avoid mortgage stress? first appeared on The Sydney Morning Herald.