NZ Herald 5 March 2011

AStay put. People who try to time the property market — choosing when to get in and out — don’t usually do as well as those who stick with their investments. Nobody, not even the experts, can predict price changes.

While the outlook for house prices is hardly buoyant, anything can happen. Your worry about ending up on the housing sidelines is real.

The same applies to shares and bonds. But there’s an extra factor in property: It costs heaps to sell a house, what with agent’s commissions, legal fees, and so on. Buying isn’t cheap either if you get valuations and other assessments.

And that’s before we look at the hassle. In January, houses took a national median of 51 days to sell, says the Real Estate Institute. With bad luck, yours could be on the market for several stressful months.

Then you have to find a place to rent — also not easy these days. And moving into the rental, and then back out later, all takes time and money.

Note, too, that while rent might be about the same as your current mortgage payments, part of those payments is paying down your loan. That’s savings for you. And your spending on insurance, rates and maintenance should over the long term be more than covered by capital gains.

I know I’ve said before that renting can work just as well as buying, provided you also save for your retirement accommodation. But given that you prefer home ownership, I would stick with it.

So how can we allay hubby’s worries? On the question of a post-Cup downturn, let’s turn to Mark Twain, who said, “I am an old man and have known a great many troubles, but most of them never happened.”

Beyond that, perhaps your husband could take a part-time course or other steps to improve his employability. And the two of you could make a concerted effort to save this year, to build a buffer for hard times.

You could also ask if your mortgage lender is willing to reduce payments by extending the term of a mortgage, or even suspend payments, to help borrowers through a rough patch. Many lenders will do that.

AHere’s hoping he did the former. It’s worth taking a few minutes to check statements. While $25 seems awfully steep, it really is up to customers to keep an eye on what’s happening in their accounts.

AYes. But once you start to earn more than $19,084 a year you will have to start repaying your loan, Compulsory repayment are 10c for every dollar above $19,084 — although that cutoff is likely to rise a bit after March 31.

A more interesting question is whether you should put your savings towards faster loan repayment. That’s a good idea with most loans, because the interest you pay is higher than the expected return on your savings — except in KiwiSaver.

However, it’s different with student loans. As you say, as long as you stay in New Zealand, the loan is interest-free. So you’re better off leaving your savings where they are, earning a positive return.

True, the government has introduced two incentives to repay student loans:

• The student loan repayment bonus. If you make voluntary repayments — above the compulsory amounts — of $500 or more in an April-March year, your balance is reduced by 10 per cent of the voluntary repayments.

However, as I’ve explained in previous columns, number crunching shows that it’s not worth taking advantage of that until you get to the point at which your compulsory payments will fully repay the loan within the next three years. At that point, repay the loan all at once, if you can. But that’s a while away for you, with such a big loan.

• A new $40 a year administration fee, expected to be charged on every student loan Inland Revenue holds at 31 March each year, starting next year. But $40 a year won’t change the maths.

There are, however, some other issues. Many people just don’t like having a big debt. Or they don’t like seeing their student loan repayments rise whenever they get a pay increase. It feels as if they are being taxed heavily.

If that’s you, go ahead and pay off as much as you can when you graduate. I’m sure the government would appreciate it.

We should note, too, that there’s talk of the government restarting interest on student loans after graduation — partly because of the extra pressure on the Budget from the Christchurch earthquake.

But that’s not the only reason. The Savings Working Group said it in its final report that it “has some concerns about the messages being sent to young people as a result of the interest-free nature of the Student Loan scheme.

“While the SWG does not support charging interest while students are studying, it is concerned that the system encourages young people to think it’s fine to have a large debt — other than a mortgage. Anecdotal evidence suggests this can lead to a blasé attitude to debt, with former students unconcerned if they run up large credit card bills. Such an attitude could lead to a lifelong habit of being in high-interest debt rather than saving.

“The SWG recommends that the Government considers charging low interest on student loans after a student has graduated. Young people would learn debt management skills whilst repaying those loans.”

It’s a good point — even if I say so as a member of the Savings Working Group. And it could give the government a great justification for reintroducing low interest on student loans for graduates.

That doesn’t mean students should stop borrowing money they need for their studies. But they would be wise to take care not to borrow unnecessarily.

ACertainly keep contributing for as long as you can get the tax credits — which match your own contributions up to $1043 a year.

For most people, the tax credits stop when they reach NZ Super age, currently 65. But if you join when you are over 60, they run for five years.

Everyone gets at least five years’ worth. And given that KiwiSaver started in mid 2007, the tax credits won’t have stopped yet for anyone.

Unlike when you were you were working — assuming you were an employee — you will no longer receive employer contributions. But the doubling of your money is still well worth getting.

After your tax credits stop, contributing to KiwiSaver becomes less attractive. However, at the same time you gain access to your money. So, if you like the way your fund is run, there’s no good reason not to put any further savings into it, knowing you can take out the money at any time.

AThere’s no such thing as a dumb question — in this column anyway.

As I said above, you will continue to receive tax credits until five years after you joined KiwiSaver. So keep contributing $1043 a year until then — even if you have to borrow to do it.

Once you reach the five-year mark, you can withdraw any or all your money, or leave it in the account for the rest of your life.

At this stage only one KiwiSaver provider offers a pension or “annuity” option — paying a regular amount until you die. That’s Fidelity Life. However, some other providers will help you set up regular withdrawals, and some offer advice for retired KiwiSavers.

At the risk of looking as if I’m plugging my book, “The Complete KiwiSaver”, it has a section on which providers do what for retirees. It might be worth moving your money to a retiree-friendly provider.