Money: Don't guarantee Dad's mortgage

By MARY HOLM

Money Matters


Q. We have a situation in our family which I hope you can help us with.

My father and his wife have returned from England after many years. They are 56 and 57.

They both work, with a combined income of approximately $50,000 a year and are renting an apartment at $250 a week.

They arrived in New Zealand with about $40,000. They have spent $15,000 of it on a car and are now very keen to buy a house. They have been looking at houses in the $220,000 range.

Not surprisingly the bank will not give them a loan. However, the bank will lend them the money (90 per cent loan for 25 years) if my husband and I guarantee it. We are very reluctant to do this as we are on one income, have a small child and have our own mortgage.

We have recommended that they rent instead of buying and save their money for their retirement.

From your previous comments last year I am wondering whether it would instead be better for them to buy a relatively inexpensive unit (say $110,000) and pay this off over the next nine years.

When they retire they will be eligible for the English superannuation and they will receive a pension (but are unsure how much this will be).


A. I don't think you should guarantee the mortgage. And I don't think your Dad and his wife should have asked you to.

Generally it's pretty easy to get a mortgage these days. If your folks can't get one, it's probably because they might be still paying it off in their 80s, and the lender is worried they won't be able to cope with it.

Presumably that's a realistic worry. And it's not fair for you to take it on your shoulders.

Of your two suggestions, I like the idea of your folks buying a unit.

It's not clear whether they would be better off in retirement if they rent in the meantime. The results of calculations on renting versus buying vary, depending on your predictions of house price rises, investment returns and so on. They're keen to buy, so they might as well.

But spending $110,000 instead of $220,000 makes lots of sense.

If your folks put $25,000 down on a unit and had an $85,000 mortgage at 8.1 per cent, they could pay it off in 10 years at $239 a week, says Rob Tucker of Loan Plan, who is chair of the Mortgage Brokers Association. Add, say, $20 a week for rates and insurance, and they're still not paying much more than their current rent.

Then, if they've saved hard in the meantime, or their incomes rise, or their pension turns out to be generous, they could trade up to a better house.

Q. There is one point I wondered about in last week's column.

You mention "commentators have been predicting 58c (for the NZ dollar against the US dollar) by year end." Do you think that is a realistic forecast?

The reason I was curious is I have held a sizeable US dollar account for some time.


A. There was a mistake in the editing of last week's column. The sentence you quote was actually part of the reader's question, not part of my answer!

I make a point of not predicting what will happen to our dollar, and I don't like to quote other people's predictions. Nobody knows.

If you want to bring money from another country to New Zealand, I suggest you bring a bit now, a bit more in a while, and a bit more later - with your timing depending on when you need to use the money.

That way, you won't move it all at the best time, but it also won't be all at the worst time.

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