no job = no loan ??

[TPI]

Yep.

If the client DSR is low or stating to hit the serviceability wall and they are cash up with good asset base we do offer a CB structure as a possible solution

But the problem here, as has been alluded to earlier, is that those requiring a cash bond structure are not actually "cashed up" in the first place.

 

[Rixter]

Let's be brutally honest here, cash bonds (as has been described here), don't really increase your income by very much in practice.

The real income you earn is based on the interest rate you get on the cash bond, which I would guess is something very small eg. 3-5% pa.

The rest is just a return of your principal in yearly instalments.

As per the example used of the 100k cash bond giving you an "income" of 23k pa (ie. 20k of your principal and 3k of interest income each year).

If lenders can't see through this sort of "smoke and mirrors" as Rolf calls it, then investors can play/game the system according to these lending criteria.

How long and with how many lenders this will be possible is anyone's guess though.

If this is central to your long-term investing or retirement strategy I think you are taking on a significant risk.

And from my reading these cash bonds are different to traditional annuities (eg. from Challenger Financial Services etc.), of which there are lots of varieties, and don't all automatically return your capital back each year in this way (or at all).

Yes TPI..as mentioned earlier, its simply a tool.

A tool for the more experienced investors with substantial size portfolio / equity holdings available to utilise after less impacting options may have been exhausted.

 

[TPI]

One needs to have the foresight to have sufficient funds (cash/loc etc) set aside in advance prior to hitting the DSR wall otherwise they will find themselves in a catch 22 situation having painted themselves into a corner.

That's a good point Rixter.

But say you do this just before retirement and set yourself up for the next 10 years with sufficient LOCs, what happens after that in the years that follow when you are now fully retired (and have another 30-40 years of retirement ahead of you)?

You will be almost 100% rent reliant, and running out of LOCs to fund a cash bond (though you may have heaps of "equity")?

Or, if you do have enough LOCs to purchase another cash bond, you're still 100% rent reliant and dependent on lenders still accepting the cash bond to increase your DSR to help approve more borrowings?

Again, not being critical, just throwing it out there for discussion!

 

[TPI]

You can commute it when ever you want ie like after its served its purpose and got you across the DSR line, ready to be utilised at another date in time

Fair enough - cash bond ON, cash bond OFF!

A tool to be selectively used as you say.

 

[Rixter]

Or, if you do have enough LOCs to purchase another cash bond, you're still 100% rent reliant and dependent on lenders still accepting the cash bond to increase your DSR to help approve more borrowings?

Correct, you could use the portion of equity set aside in your LOC/s to do it all again. Portfolio value & rental incomes will have increased significantly if not doubled in that time also. So there are all the options associated with that you could use to fund lifestyle too.