Q&As
QMost of your questions are from the well off.
We are two Supported Living people, one owns the family home now. It is in poor condition, weatherboards rotting, window frames gone, drive cracked and potholed, fences rotted, the list is dire.
It is in a cheap suburb. Selling and buying a small unit might work, but checking real estate sales and listings it seems that it may not sell and pay for a unit, plus costs — even though it is a four-bedroom house with double garage and carport etc.
So, how to stay and fix it? A reverse mortgage? Owner is 63, I — his carer and sibling — no ownership of home — am 60.
What do we do? There are no savings, no chance of earning more.
AIt must be depressing watching the deterioration of your home. Time for some action!
My first suggestion is to invite several real estate agents round to give you free estimates of what your home could sell for, as is.
These days, people sometimes get pretty good prices for homes like yours, especially if they are on large sections. The new owner pulls down the house and builds several townhouses or similar. Or you might find someone looking for a large house and willing to put in the work to fix it.
Hopefully, you’ll find you would get a high enough price to buy a small unit, or some other smaller home that’s easy to take care of. The agents should be able to give you info on the prices of those options too.
If that’s just not going to work, you need to find money from somewhere to fix your current home — either to make it more sellable or to make it better for you to live in. I suggest you go to the MoneyTalks website and arrange an appointment with a financial mentor.
This service is funded by the Ministry of Social Development and is free. “There are 800 financial mentors across 180 services all around the motu,” says a spokesperson. Go to moneytalks.co.nz and click on Find Help Now.
A mentor will help you with your finances in many ways, including:
- Budgeting. I’m not saying you budget badly. I wouldn’t be surprised to learn you are excellent at stretching your dollars. But pretty much everybody can make some improvements.
- Paying down debt, if that applies to you.
- Finding out if you qualify for any other financial help from the government. “A strength of a financial mentor is their knowledge regarding WINZ, eligibility, and what is available to the client, and assist in applying for them,” says Team Lead Ange Smart. “Eligibility criteria can often change. Therefore when someone may have not been able to receive an allowance previously, they may now be entitled.”
- Checking if you could get a rates rebate or rates postponement. Councils offer different plans around the country. A rebate reduces your rates if you are on a low income. With a postponement, you don’t pay rates but they accumulate as a loan from the Council that is repaid when your house is sold. It’s like a mini reverse mortgage. A mentor can assist you with this.
- Some help with a reverse mortgage. “A financial mentor will not give advice about whether a client should or should not take up the option of a reverse mortgage. This sits outside of their scope and is more suited to discuss with a financial adviser,” says Smart. However, a mentor could discuss the impacts of a reverse mortgage on your budget and help you find an adviser.
Note that there are minimum property values for reverse mortgages — at Heartland Bank the minimum is $250,000, and at SBS Bank it’s $750,000 in Auckland, $450,000 in Invercargill and $600,000 elsewhere.
Come to think of it, even if you do sell your house, it would be a good idea for you to find a financial mentor anyway.
By the way, have you discussed whether your brother will leave the current home — or one you move into — to you if he dies before you? Obviously I don’t know all the circumstances, but it wouldn’t seem fair for you to be left with nothing. If you don’t know, please discuss this with him even if it’s awkward.
QI read last year in your column about some really good budget advisers that are available free of charge. From memory they were well trained and were employed by an NGO. Can you advise where we would find them?
I have a 62-year-old friend who has problems with managing money, has no savings and assets and is about to inherit $250,000. It would be useful for her to have someone look at her insurance, spending and budgeting and advise around how to manage her inheritance.
AMoneyTalks would be what I wrote about. I asked Ange Smart whether a financial mentor could help someone in your friend’s situation.
“Absolutely, will help anyone look at their budget in order to plug any holes or help ensure that they aren’t being take advantage of etc.,” she says.
“The financial mentor will not be able to give any advice on their inheritance.” But the mentor may help your friend to find a financial adviser. Or she can go to maryholm.com/advisers on my website.
Adds Smart, “Coming in to a large sum of money is actually a really stressful responsibility for most people, believe it or not! Knowing how, where, when and who to invest it with is scary and daunting if you haven’t had to do it before.
“Beware of scams! If people know that you have money, they may lean on you and ask for loans. So chat with an adviser, they are worth the money.”
QI retired in 2014 due to breast cancer. In 2017 My husband was diagnosed with terminal cancer and passed away in 2017. I withdrew most of my KiwiSaver at the time to pay for medical treatment for my husband.
In January 2020 I had $280 in KiwiSaver. In March 2020 it was $50, now it is $1.98. My provider charges me $3 per month fees. I did not continue to put money into KiwiSaver because the government did not put in any funds because I’m over 65.
I’m still paying a mortgage. Because of my husband’s occupation we were unable to get mortgage insurance. Sounds mean, eh, but it was true. Anyway we did have personal life insurance, however it was getting up to $200 a month for both of us and we were in the lower income earning group so decided to stop it about five months before my husband was diagnosed with cancer. I am 70 now. What went wrong?
AYou’ve had a tough run. My heart goes out to you.
On KiwiSaver, if you have a low balance it’s wise to avoid a provider that charges a monthly fee. But it’s a bit late to worry about that now.
Rather than looking at what went wrong — and a fair portion of that seems to be rotten luck — let’s look at what you can do about your situation. I strongly suggest you get yourself a financial mentor, as described above.
QI agree with what you said in a recent column, that it is very risky for parents to act as guarantor for their child’s mortgage.
But regarding giving them funds as a gift (obtained through a reverse mortgage, or other means) to help them to buy a house, I would like to recommend what I think is a very simple precaution.
Whether they are currently co-habiting, or might be in the future, the moment the money is used to buy a house which they share or will share, I believe it becomes part of their joint marital/couple assets. So if they separate or divorce, the partner would in effect be entitled to half of the gift.
(By the way, I think this also applies to inheritances, as soon as they are put into a joint bank account.)
So I suggest the money is given to their child (or anyone else they want to help) as a loan.
The loan can be interest-free (or very nominal interest, if legally required to make it a contract), restricted to use to buy a house, with no fixed term, but with the sum to be repaid if the house is sold.
In this way the money never becomes the property of the child or their partner, so if they split up and have to sell the house the parents can get their money back. At which point they can decide whether to re-lend the same, or another amount. Or nothing if they’re in dire need themselves.
If the parents die first, I assume the outstanding loan would become part of their estate, and eventually go to their beneficiaries.
This might also be worth considering as something a child can do (rather than a gift, or regular payments) if an elderly parent has a house, but not enough income. Once they sell the house and move out, or die, the child gets their loan back, before assets are divided under the will.
AI like the sound of this, so I sent your letter to lawyer Jeremy Sutton, an expert in this area.
He says much of what you say is correct, but adds, “The loan must be documented. And yes, in a sense it becomes part of the asset that will be purchased, but the child has to pay it back. Make sure the other partner is fully aware of the loan arrangements!“
On what happens if the parents die before the loan is repaid, “The executor would have to call in the loan and make it a part of the estate’s assets before distribution to beneficiaries.”
Sutton says the loan would not have to include interest.
But there’s one possible problem. “The basis of the letter is correct, but often banks won’t lend if the deposit is in fact a loan from parents, as it contravenes the LVR rules. Frequently the bank will require documentation to show the source of the funds.” Check with lenders before setting this up.
Sutton has another suggestion. “Contracting out agreements are another way to protect your money. A contracting out agreement may keep your property separate. It is a way for one party to the relationship to ringfence the deposit they have put into the property, for example.”
There’s more information about contracting out on Sutton’s website.
On your idea about an adult child lending to an elderly parent, Sutton says what you say is correct, but again the loan should be properly documented.
His final comment is predictable! Still, it’s wise: “This is a very important area to get legal advice. Paying for a lawyer here is worth it and most lawyers deal with such issues.”
P.S. On parents guaranteeing their children’s mortgages, I’ve had a couple of letters saying how well it worked. Just be aware of the risks — covered in recent columns.
QWe have someone in our bank who we always deal with when we have term deposits to set up. That person always makes sure that we get the best possible rate, often a little more than appears on the bank website.
AThanks. The theme that comes through letters on this topic is that it’s best to cover all bases — check the website and call the bank.
Enough on this topic — and on switching banks and banking scams. Thanks everyone for your letters.
I will send all the recent emails about banking to the Commerce Commission, which is looking into personal banking. If you wrote to me and don’t want me to include your email address in the material I forward to the Commission, please let me know within the next week.
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Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.