This article was published on 7 February 2015. Some information may be out of date.

Q&As

  • Can 57-year-old separated woman on low income get a mortgage?
  • Should move from term deposits to balanced fund be done all at once?
  • Ditto for move to higher-risk KiwiSaver fund
  • How to get independent advice — on paying down the mortgage

QMy husband and I are separated and in the process of dividing up our assets after living together for 26 years.

I have made it clear that I do not want to sell the mortgage-free family home, in inner city Auckland, as our two young adult children still live here with me. My husband has presented me with the option of delaying my payment owed to him for a few years.

The property also has a converted garage that I would like to upgrade to a separate living space.

My problem is that I have been a full-time student for several years, working part-time as a graduate teaching assistant at university with an average salary of $350 per week.

How would I be able to raise a mortgage to do the renovations needed on the sleep-out, so that I can increase my income by renting it out and thus eventually pay him his portion of the house? I should add that, though I have recently completed a PhD, I have had no luck in securing work for this year.

I am 57 years old and scared for my future, as the separation was not my choice and I have been forced into this situation.

AHang in there! There are some big positives in your situation:

  • You have a mortgage-free home.
  • You have a PhD. While you haven’t got a full-time job yet, there’s sure to be something on reasonable pay for you.
  • You have a good plan — to upgrade and rent out the sleep-out.
  • In inner city Auckland, your home is likely to be worth more than $1 million. I understand why you don’t want to move, but if push comes to shove — or later down the track — you could live elsewhere and free up several hundred thousand dollars.

So how do you make your plan for the sleep-out work?

“Unfortunately this is not an uncommon scenario,” says mortgage adviser Karen Tatterson. “And while anyone would of course want her to be able to hold onto the family home, some really good planning is definitely needed.

“In stressful situations it can be easy to make a decision that’s not necessarily the best option for the future. So first of all, my advice is to get all the necessary information together and carefully consider all scenarios.”

First things first. Could you get a mortgage? “It is likely that she would get a mortgage with the addition of assumed rental income from the garage conversion,” says Tatterson. “However if the home is in joint names, her ex-husband would need to act as a guarantor and the bank would require a full application and statement of position from him as well. In reality she would need to have him on board as part of the process.”

How much might you need to borrow? “To convert a sleep-out to something rentable, she would need somewhere in the vicinity of $20,000 to $100,000 — a big variance I know — but something she would need to be very clear on before entering into lending,” says Tatterson. It would be wise to get a couple of quotes early on, so you know where you stand.

“Also in some situations, if the completed conversion constitutes a minor dwelling, consent may be required from council, and this certainly ups the cost.” Check this with the council early on in the process.

Next question: how long would the mortgage term be, given your age?

“Depending on the bank she may be limited to a shorter loan. However, in this case where the advance is to improve property value, it is likely that the term could be extended as far out as 30 years,” she says.

It would be good to get a longer term, even though you would hope not to be making payments at 87! It keeps your payments down now, and you can speed them up when your income is higher and the kids leave home.

To give you a rough idea of payments, let’s say you’re borrowing $50,000 at 5.75 per cent. On a 20-year loan you would pay $351 a month. On a 30-year loan it would be $292, and on an interest-only loan it would be $240.

If you borrow $25,000, halve the payments. If you borrow $100,000, double the payments.

It wouldn’t be wise to pay interest-only indefinitely, but it would be an option at first, says Tatterson — perhaps until you get a well-paid job.

She adds some further tips: “The rental income can be used as ‘income’ for the purpose of the loan approval, and she would need to provide a rental assessment/appraisal from a local real estate company.

“More information is needed to work out what the maximum loan at a comfortable level would be. Things like the actual rental income on the garage conversion and whether her young adult children are not dependents. If they are dependents then the potential loan value drops quite significantly.”

If the amount you can borrow is not enough to make the sleep-out rentable, perhaps you could wait until you have a full-time job. With a higher income, you could borrow considerably more.

Adds Tatterson, “There are a lot of variables here and information we don’t know, so some sound advice on all the facts and figures and guidance on what she needs to consider is definitely the first thing to do.”

You can get free advice from a mortgage adviser, as they’re paid by the lender that gives you your mortgage. So that would be a good first step.

Tatterson is a board member of the Professional Advisers Association, and she says the association is “a good first call for people looking for an adviser to work with, and for guidance on what they should expect from the advice relationship.”

Good luck!

QI’m planning to move $100,000 in term deposits to an ASB balanced PIE fund and wondered if I should move it all at once or in chunks over time to smooth out the effect of share market fluctuations?

AGood question, given that roughly half the investments in a balanced fund are growth assets — mainly shares but sometimes also some property.

Over the long term, we expect shares to bring in higher returns than term deposits, but the returns are more volatile. The rest of a balanced fund’s investments are typically lower-risk fixed interest, which usually waters down the volatility, but it’s still there.

We never know when a share market will fall. So there’s always a danger that you’ll move a large amount of money into a share investment right before a big drop.

The way around this is to move the money gradually. Looking back, you will inevitably wish you had moved more at what turns out to have been a good time. But that certainly beats realizing you moved the lot at a bad time.

On the other hand, you don’t want to muck around forever, once you’ve made your decision to move money. I suggest you move say a third now, a third in three months and a third in six months.

QI am currently in a conservative fund in KiwiSaver and I am looking at switching into a growth fund with my current provider.

I still have about another 30 years until retirement, so I am fine with accepting more “ups and downs”. However, I am confused about whether timing matters when switching, and how this would affect my current balance?

For example, if the growth fund is currently at the top of a strong growth phase, am I risking taking a hit to my balance if I switch during a peak? I’m trying to understand if timing makes any difference, and whether or not I should wait for either a (perceived) high point or low point in the fund?

I would really appreciate your advice as I don’t really get a very clear answer when I try contacting my provider.

AIt’s disappointing that your provider isn’t giving you guidance on this. They should.

You might want to consider switching providers as well as funds. The KiwiSaver Fund Finder on www.sorted.org.nz will help you find other providers to consider. Then you can check those providers’ websites to see if they offer helpful advice.

Regardless of which provider you use, your thinking is good. Over 30 years your account is likely to grow much more in a growth fund. But, like the previous correspondent, you don’t want to move all your money to a higher risk fund right before a downturn.

It would be great if you could time your move. But even the experts often get that wrong. So I suggest that you, too, make your move gradually over several months.

Most KiwiSaver providers will let you invest in more than one of their funds, and will also permit several moves between funds within a year.

QCan you tell us where we can obtain independent financial advice?

While there are a lot of financial companies around, it’s difficult to find someone who is truly independent.

We’re trying to decide whether to take a large sum out of my husband’s pension to clear our mortgage or whether we should continue to invest it. Any advice gratefully received.

AGenerally, it’s better to reduce a mortgage than to invest the money.

Let’s say your mortgage interest rate is 6 per cent. If you pay $100,000 off the mortgage you will no longer have to pay $6000 in interest each year. Avoiding paying that amount improves your wealth just as much as earning 6 per cent on an investment.

It’s possible that hubby’s pension is earning more than 6 per cent after tax and fees. But you don’t earn that sort of return without taking risk. And paying down the mortgage is risk-free.

Having said that, there might be other reasons to favour the status quo, so it could be good idea to see an authorized financial adviser, or AFA.

One way to tell if an adviser is independent is to look at how they are paid. I think it’s best to use an adviser who charges you a fee and gives you any commissions they receive from the investments they put you into. That way their choices aren’t affected by how much commission they get.

For more on this, and a list of advisers who charge fees, see the Info on Advisers page on my website, www.maryholm.com.

Footnote: Don’t confuse AFAs with registered financial advisers. RFAs can help you only with simpler financial products, such as insurance, bank term deposits and mortgages. They’re not qualified to give advice on investments or people’s broad financial situations.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding 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.