NZ Herald 5 October 2013

AThere’s nothing magic about fortnightly payments. The result you get depends on how you set it up. There are two ways:

• Work out your total annual mortgage payments. Then divide that by the 26 fortnights there are in a year. If you paid that amount each fortnight, it would make only a tiny bit of difference — you’d pay a little less interest because the bank gets some of your money slightly sooner. But it wouldn’t really be worth bothering with.
• Cut your monthly payments in half and pay that amount fortnightly. You pay somewhat more per year, because there are 26 and a bit fortnights in a year, not 24. And that can make a surprising difference.

Let’s say you have a $200,000 30-year mortgage at 6 per cent. Monthly payments are $1200 — or $1199 if we’re being pedantic. If you switch to paying $600 a fortnight, you’ll pay off the loan in 25 years instead of 30 years, and save almost $50,000 in interest. Not to be sneezed at.

Should you switch? Well, it’s a good idea for budgeting to match your mortgage payments with your income flow. If you get paid fortnightly, pay the mortgage fortnightly. But if you’re paid monthly, it’s probably easiest to pay your mortgage monthly.

If the latter is the case, you can still increase your monthly payments to get rid of the loan faster. To work out how effective an extra payment is, use the mortgage repayment calculator on www.sorted.org.nz.

The moral of the story: Mums are worth listening to!

AI’m not sure if you are planning to just withdraw your and employer KiwiSaver contributions to buy your first home, or whether you also plan to apply for a subsidy of up to $5000 per person.

If it’s just the withdrawal, there are fewer rules. Unlike the subsidy, there’s no income cap or house price cap. And while you have to be in KiwiSaver for at least three years, there are no rules about minimum contributions. The property you buy has to be your “principal place of residence”, but there’s no timeframe on that.

However, if you want the subsidy, there is a time limit. “They must live in the house for six months, or pay the subsidy back,” says a spokesperson for Housing New Zealand, which runs the subsidy.

Sounds reasonable to me, and it’s way short of three years. So your plan shouldn’t present any problems. The fact that you rent out the first home is irrelevant.

While we’re on the subject of KiwiSaver help for first home buyers, the changes to the house price caps, income caps and minimum deposit for the KiwiSaver subsidy and Welcome Home Loans took effect on October 1. The main changes are:

• You need a deposit of at least 10 per cent of the purchase price.
• House price caps have risen to: $485,000 in Auckland; $425,000 in Wellington City and Queenstown Lakes; $400,000 in Christchurch City and Selwyn district; and $350,000 in Thames/Coromandel, Tauranga City, Western Bay of Plenty, Hamilton City, Kapiti Coast, Porirua City, Hutt City, Upper Hutt, Tasman/Nelson and Waimakariri. For the rest of the country, the house cap stays at $300,000.
• The income caps are now $80,000 for one buyer and $120,000 for two or more buyers. This is a change from $100,000 for one or two buyers and $140,000 for three or more buyers.

Housing New Zealand has produced a new booklet “which shows how the deposit subsidy, savings withdrawal and Welcome Home Loan can be combined to make getting your first home easier for first home buyers with low to modest incomes or those with difficulty saving for a deposit,” says the spokesperson.

You can download the booklet from www.my-first-home.co.nz.

AI’m afraid there are a couple of flaws in your thinking.

The first is that bringing money into New Zealand is a good idea because the kiwi dollar’s value is high relative to the past. The opposite is the case.

Think of it this way: New Zealand dollars are currently expensive by historical standards. So when you transfer money in from another country, you can buy fewer kiwi dollars.

There’s another issue here, though. You might have noticed that I’ve said “relative to the past” and “by historical standards”. Who knows how we’ll view 2013 foreign exchange rates in the future? Nobody can predict those rates — regardless of expectations about interest rates.

In light of that, I don’t think people should consider the exchange rate when deciding whether to move their super to New Zealand.

Another point: while you’re probably right that the New Zealand economy is more vulnerable than the Australian economy, that needn’t have a major effect on someone’s decision about moving their super.

It’s true that most savings funds — whether an Aussie super fund, KiwiSaver or another savings fund — invest a portion of the money in the home country. To that extent, moving your super from Australia to New Zealand will increase your exposure to the local economy.

However, to benefit from diversification, it’s best to put a large portion of your long-term savings in overseas assets. And you can do that through practically every KiwiSaver scheme. If you move super from Australia and your KiwiSaver scheme doesn’t offer overseas investment options, switch to one that does.

Okay, you’ll still probably have some of the money in New Zealand assets. But that’s no bad thing. Assuming you’re planning to retire in New Zealand, somewhat reducing your exposure to future foreign exchange risk is a plus.

Having said all that, you make an interesting point about whether New Zealand financial experts are pointing out the disadvantages as well as the advantages of moving Australian super to KiwiSaver.

A quick survey of several KiwiSaver provider websites shows some list disadvantages while others don’t — and some don’t even bother with any of that, just telling you how to make the transfer. If your provider doesn’t give you the pros and cons, keep that in mind when assessing the quality of their service to you.

Here’s an objective view. Firstly, arguments in favour of bringing your super from Australia to New Zealand:

• It will probably be easier to manage your savings if they are all with one local provider.
• There’s an advantage for people planning to withdraw KiwiSaver money to buy a first home. You can’t withdraw money you’ve transferred from Australia. However, “you can withdraw the investment earnings earned on it while it is in KiwiSaver,” says SuperLife on its website. “A person looking to buy their first home may gain an advantage if they transfer their Australian superannuation balance sooner as the investment earnings earned while it is in New Zealand can be withdrawn for this purpose.”

Now for some arguments against bringing your super back:

• As our correspondent says, in many cases people can access their money at a younger age in Australia. This might or might not matter to you.
• When you transfer, you may have to pay exit fees to the Australian provider and/or to a pension transfer company.

How about the all-important fund fees and taxes? On fees, compare what you’re paying in the two countries. Sometimes the Australian fund will win, sometimes the New Zealand one will.

On tax, several websites point out that Australian super funds are taxed at 15 per cent, while many New Zealanders pay more than that.

However, SuperLife points out that the Australian tax applies to both income and capital gains. “In general, New Zealand adults pay tax at 17.5 per cent or 28 per cent on income (some pay 10.5 per cent) and 0 per cent on capital gains. While the NZ rate is often higher (e.g. 28 per cent versus 15 per cent), it is applied to less of the total return and so for many investors, it will result in less tax.”

Another important point about tax. It changes. It’s not a good idea to make any decision based largely on tax.