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Should We Buy, Or Should We Rent?

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Contributor:
Mary Holm
Mary Holm

Question:

My husband is 65 years and myself 61 years. We have had busy careers, my husband with a large company in Auckland and myself a nursing career as a registered nurse.

We sold our Auckland property this year and have invested $200,000 of the funds with a trading bank. As this is all the capital we have - due to second marriages for both of us - and we are receiving the pension, which totals $276 a week, we are wanting to make our next move a wise one.

In the meantime, family have been very kind in letting us stay with them.

Do we go right out of Auckland and purchase in a town where we know no one; or do we buy on the outskirts of Auckland and have a small mortgage and I work part time; or do we rent?

We both are home lovers and enjoy having our own abode. Any suggestions?

Answer:

Mary Holm: Your second to last sentence clinches it. Don't rent.

Most people like the security and certainty of owning their own home in retirement, and you are clearly amongst them. With the means to own at least a modest home, why not?

The next question is: Auckland or elsewhere? Again, your comment - "where we know no one" - seems to clinch it.

While some people make a real go of meeting new people when they move to a new town, if the prospect is dismal for you, you probably shouldn't take it on.

That leaves outer Auckland with mortgage and you working. I wonder if your husband could take on part-time work, too. While you may not relish further work, more and more 65-and-ups are working, including about a quarter of 65-69 year olds.

Some continue with their careers full-time or part-time. Others teach their work skills or hobbies - perhaps through a local high school's adult evening courses, or mow lawns, alter clothes, bake special cakes, or become a home handyman.

Think about whatever you do for others. There may well be a buck in it.

To keep your mortgage payments manageable, Brian Berry of Mortgage Works in Tauranga, former chairman of the Mortgage Brokers Association, has a few suggestions:

  • Look for a property with a self-contained flat, to give you some extra income.
  • Consider an interest-only mortgage. Obviously, it would be preferable to get rid of the loan over the years, but if that is just not affordable, some banks will offer you a ten-year interest-only loan, says Berry.
  • In ten years or so, or whenever part-time work is no longer an option, you might consider an equity release mortgage.
Let's say you buy a $300,000 home with a $100,000 interest-only mortgage. If the house value grows by 3 per cent a year, it will be about $430,000 in ten years.

At that point you will be 71, and eligible for an equity release mortgage of 26 per cent of the property value, which is about $105,000. That would tidily pay off the interest-only mortgage with a bit to spare for, say, home maintenance.

From then on, you would make no more mortgage payments. But the equity release mortgage would grow, over the years, to be repaid when you leave the house - perhaps to go into a rest home or when you both die.

At current interest rates, an equity release debt doubles about every 6.5 years, says Berry. But your house value should also increase over the years.

The end result: Having such a loan will reduce the inheritance you can leave to family. But you've already said your family is supportive. Hopefully they will appreciate that this is a way you two can live where you want to.

By the way:
  • Once you turn 65, your NZ Super payments will rise. The current rate for two spouses who both qualify is $406 a week.
  • Your comment about having low capital because you are in second marriage is a thought-provoking one.
If everyone who goes through a divorce gets half the assets, two halves should make a whole about as big as any other couple's assets.


 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice. 

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