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A third of Kiwis will have a mortgage at 65

October 19, 2015

Almost a third of people won't have paid off their mortgages by the standard retirement age of 65, according to a shock bank report. A generation of "grey" borrowers face either working longer, using their KiwiSaver pot to pay off the debt, or hope equity in their homes will solve the problem by downsizing.

Exclusive research from BNZ shows even current, historically low interest rates have not been enough to coax many people to get ahead in paying off their home loans. Mortgage rates are at their lowest point since the 1960s, but research by Colmar Brunton for BNZ, found more than 60 per cent of home owners were not using this opportunity to pay off their home loans faster.

Craig Herbison, BNZ's director of retail and marketing, said many people were taking a 'she'll be right' approach to what is most often the biggest financial commitment of their lives. "If the current rate environment isn't motivation enough, I don't know what is," Herbison said. "Our research found 74 per cent of people claim they're concentrating on reducing and minimising their overall level of debt, but they're ignoring the biggest and most important one."

The research also showed a yawning gulf between borrowers' behaviour and their aspirations. Just over half the people polled wanted to retire early, with most believing the mid 50s years is the ideal time to be mortgage-free, researchers found.

Yet the average, actual age for people to people to clear their mortgages was 60. Only 37 per cent of people with mortgages had done the smart thing and kept their mortgage repayments the same after rates fell so they could pay off their loans faster.

Some admitted they had accepted lower repayments for "lifestyle" reasons, but nearly a fifth of people (18 per cent) accepted they could pay more and not crimp their current lifestyles at all, said BNZ. "If you leave your mortgage to sort itself out, you could well be working to pay it off long into your retirement. Our research found almost a third of people will have a mortgage then. My view is that this figure may well increase, especially as the impact of rising Auckland house prices takes effect."

Just under a third of people haven't taken action because they are locked in to fixed term, fixed rate loans, BNZ found. About a fifth of those borrowers had looked at breaking their loans, but the fees to do so were unaffordable.


Mortgage broker, Karen Tatterson from Loan Market, said there had been a big rise in people asking brokers to help them break loans only to find the fees, which compensate the bank for the lost interest it would have made under the contact, are prohibitively high. There was a surprising amount of flexibility in mortgages, Tatterson said. Many fixed term mortgages do allow additional repayments at any time, often up to 5 per cent of the amount still owed, or allow people to increase their repayments.

Researchers delved into the rationale behind people's mortgage repayment decisions, and found that only 13 per cent were paying the minimum because they could afford no more. "This means 87 per cent of New Zealanders have the opportunity to do more," Herbison said.

Even small increases in payments make a huge difference, the Sorted mortgage calculator shows. A $300,000 mortgage with an average interest rate of 6 per cent repaid over 30 years will result in just over $347,000 of interest. Increase the fortnightly repayments by just $30 and the mortgage would be gone in 28 years and $36,200 less in interest. Tatterson said: "I don't think many people actually get that until we sit them down and show them the figures." But with mortgages having got so much bigger, people are going to have to get smarter, Herbison believes. "As 30-year mortgages terms become more and more prevalent, New Zealanders need to be smarter with how they manage their mortgage," he said.

The research also showed 53 per cent of New Zealanders are relying on the value of their homes to set them up in the future. One in five will not have saved enough to stay in their own place, and planned to downsize or move to a different town or city to access the equity in their house to fund their retirement. Tatterson said there's a growing trend for Aucklanders of a certain age to buy properties in neighbouring cities in preparation for retirement, driving up prices. "I can tell you, it is definitely happening."

Meanwhile, nearly half of us (47 per cent) said they would continue working past 65.


Paul and Justine Gunn cut the fripperies out of their household budget to avoid having to make mortgage repayments at retirement age. The 45-year-olds took financial advice on how to tackle the looming burden after realising that 25 remaining years on the loan secured on their Auckland home, would take them to the age of 65 and beyond. "We set a goal of getting rid of it and the only way was to get organised," said businessman, Paul Gunn.

The couple turned to the financial "personal trainer" service EnableMe, which identified where they were frittering away money on unnecessary purchases, without taking the fun out of life. "The plan was to pay our loan off in eight and a half years, but we managed to do it in five and a half, which astonished us" said Gunn. "My indulgence was sports equipment and attending events. I cut back, and enjoyed those things which I did spend money on far more. "We have saved literally millions of dollars in interest that we would have paid if we had allowed the mortgage to continue for the duration."

Hamish Cowan of EnableMe said: "It is not uncommon for people in their 40s and 50s to have 30 year mortgage terms hanging over their heads. A lot of people are struggling to have the debt paid off by the time they are 65. "It can be difficult with the rise in the cost of living, so you need a plan."

Rob Stock, www.stuff.co.nz

October 2015

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