NZ Herald 15 August 2020

AIndeed. Yours is one of those questions that required a long walk to think about!

Here’s the conclusion. What you’re suggesting is not dollar cost averaging. For that, you have to deposit the same amount regularly in an investment whose value fluctuates. That means you buy more shares or units when they are cheaper. So your average price is lower than the market average price.

Dollar cost averaging happens automatically when, for example, you invest regularly in any middle-risk or higher-risk KiwiSaver or other managed fund.

Your mortgage idea doesn’t work quite like that. However, it does reduce risk a little in a couple of ways, and that’s always good.

To set it up, you would put a quarter of your mortgage on a six-month fixed rate, and then fix a quarter for a year, a quarter for 18 months, and a quarter for two years.

Then, as each term expires, you renew for two years. That means part of the loan will mature every six months.

This is similar to what I suggest for people with considerable sums in term deposits. It’s sometimes called laddering. It has these advantages:

• You average out interest rates. Nobody knows when mortgage rates will fall or deposit rates will rise. If you have some money maturing quite frequently, you’ll sometimes get lucky with your timing.
• Of course the opposite is also true. You’ll sometimes have to renew your quarter-mortgage or deposit when rates are deeply unattractive.

• But most people prefer this. They accept that they won’t always have good luck in exchange for knowing they won’t always have bad luck.

• You get frequent access. With a laddered mortgage, you get a chance every six months to pay off a lump sum without penalty — in case you receive an inheritance, win Lotto or receive some other lump sum. It does happen! With laddered term deposits, you can withdraw some money six monthly if you need it.
• If interest rates get worse — rising if you have a mortgage or falling if you’re in term deposits — the rates will change in steps for you, giving you more time to adjust.

One possible negative is that your lender will know it will be complicated for you to move elsewhere, so perhaps they won’t treat you as well.

But still, it’s an idea worth thinking about. Readers with fixed rate mortgages might want to ask their lender about it when their current term expires.

AIndeed. Age, in an of itself, should not be a reason to turn someone down. And a Westpac spokesperson says, “Customers of all ages are eligible for mortgages if they meet our lending criteria.”

He adds, “However, it’s not in a customer’s interests for them to have difficulty meeting repayments. Therefore, as a responsible lender, our main interest in processing any mortgage application is assessing whether the customer is able to service the loan across its full term.

“With this in mind, it is important that we talk to borrowers who have retired or are due to retire during the term of their loan about their future income and how they will pay their mortgage.

“Approving a mortgage is not as simple as working out break-even costs. Our lending assessment covers a range of aspects including the customer’s current income, foreseeable changes to that income, and the impact of any adversity that may affect either income or costs.”

He goes on to say that the bank can’t comment on your specific situation without knowing more. “We apologise to this customer for any misunderstanding that might have occurred from our end, and have asked Mary to pass on an invitation for them to get in touch so we can explore their options.”

I’ve given you the contact details, so I hope you take him up on his offer.

AHappy to be vented at if it helps! But I’m afraid that what I’m about to say might make you angrier.

NZ Super does not currently come from money the government has set aside and invested. It comes from taxes and other revenue coming into the government coffers the same year the Super payments go out.

I say “currently” because the NZ Superannuation Fund has been set up to help cover the costs of NZ Super in the decades to come, when baby boomers push up demand. But even so, that fund will cover only a minor proportion of the costs. Most of the money will continue to come from taxpayers.

And until then, today’s taxpayers pay for today’s superannuitants. That’s not unfair, because a few decades back the current superannuitants were taxpayers, in turn paying for their parents and grandparents. And presumably today’s taxpayers will get their time as recipients later in their lives.

The system is different from what you and many others think it is. But let’s just relax. It works. And as I said last week, no future government would be heartless or foolish enough to push the elderly into poverty.

On people’s knowledge about KiwiSaver, I — and plenty of others — are doing our best!

AThere are always two sides to a story, but I must say your sister-in-law does sound like a worry.

What to do about the situation? Your idea is creative, but you could end up going to a lot of trouble for no gain.

It would be possible to set up a trust for your brother and his children. “But if the brother is already a beneficiary of the existing trust, I see no benefit in setting up another one,” says trust and estates lawyer Rhonda Powell.

“The mother could simply divert his inheritance to the existing trust (or leave all of her estate to the existing trust).”

Could you control how your brother spends his money from the trust? I asked.

“The money would not be ‘his’ if it were in a trust,” she says. “Beneficiaries of trusts generally do not have any particular entitlements. If the trust gave the brother ‘rights’ to the assets, then it would not be effective in protecting him.

“So yes, the trustees would and should remain in full control of the trust fund and could choose if and when to make distributions to the brother or any other beneficiary. There should be other beneficiaries in addition to the brother because if not, he could legally bring the trust to an end by demanding this of the trustees.”

Powell adds that your brother’s wife probably wouldn’t be able to get the assets anyway.

“Under New Zealand law, inherited assets are not ‘relationship property’ and are not at risk in a divorce situation,” says Powell.

“The most important thing is to keep the inherited assets separate from relationship property– for instance, not using an inheritance to repay the mortgage on the family home.

“However, in this scenario the brother lives in England and it will be English law that applies. It sounds as if the brother and his ex-partner have already resolved relationship property, and if that has been properly documented, there should be little risk, and the additional complications of a trust should not be warranted.”

By the way, you would soon have to tell your brother if you set up a trust for him.

“Once the Trust Act 2019 comes into force (January 2021), trustees will be required to tell beneficiaries a certain amount of information, including the fact that they are a beneficiary, the details of the trustee, and the fact that they have the right to additional information,” says Powell.