Mary Holm 's Opinion

Mary Holm is a personal finance columnist for the NZ Herald.

Mary Holm: Home loans - time to float or fix?

6 comments
Home-loan risk can be spread by keeping some floating and the rest fixed over both shorter and longer terms

-Sudden steep climbs in interest rates can be avoided by spreading your terms. Photo / Thinkstock
-Sudden steep climbs in interest rates can be avoided by spreading your terms. Photo / Thinkstock

Q: I agree with your recent suggestion that, to hedge against changes in mortgage interest rates, it's best to have a number of mortgage terms with varying rates.

I have $400,000 mortgaged against an investment property, and the terms are: $50,000 for six months at 5.25 per cent, $50,000 for 18 months at 5.40 per cent, and $300,000 variable floating, currently at 5.75 per cent.

I anticipate paying $200,000 off the variable mortgage within six months, from money owed to me. The remaining $100,000 was going to be split between a floating rate and a three-year term.

You recently suggested a split between a floating rate, a one- to two-year term and a five-year term. Previously the maximum term I have borrowed for has been three years, therefore I'd be interested to know why you prefer a five-year term.

A: When it comes to mortgages, there's no way of knowing in advance whether it's better to be in for the long haul or a shorter term.

But there's one clear advantage of a five-year mortgage over a three-year one: you know exactly how much you have to pay for longer. Most people like some certainty. What's more, you'll be happy if mortgage rates rise. You'll be sitting pretty for five years, not just three.

The downside is that if rates fall, you won't like being stuck at, say, 7 per cent. That's why it's better to also have some of your mortgage over a shorter term and some floating.

At the moment a fall in mortgage rates seems unlikely. But I'm sure the people who took on longer-term mortgages at 8 or 9 per cent a few years back thought that, too. Many of them tried to refinance when the rates dropped a long way fast, only to find they faced really stiff early repayment penalties.

While the experts try to predict interest rates over six months or so, ask them to project much further and they're reluctant. Interest rates are like foreign exchange rates, affected by so many factors.

In light of that, my suggestion - of some floating, some fixed short-term and some fixed for five years - spreads your risk widely.


Putting spare room to use

Q: After reading your piece in last week's column titled "It's a hard road having to start again", I thought of an idea you could suggest.

If they have a spare room and they live close enough to a high school that has international students, or to private English language schools, they might consider getting a homestay student.

The board payment is usually at least $220 a week, sometimes more, and at least half of that amount is profit. Also, you do not need to pay tax on the income. We have hosted students for the past 18 years off and on, and have earned a lot of money from doing so, as well as having met some really nice people.

A: A great idea - provided, of course, the couple have a spare room and live in the right location. They might need to ask at local schools to establish that.

Your response is one of many to last week's letter from the couple, who are struggling after being made bankrupt.

It's been heart-warming to see the emails coming in.

Thanks to everyone who wrote - including several who don't want their letters published but have asked me to forward them to the couple. An excerpt from one such letter: "I am an ex-recruiter and am happy to spend some time with the couple ... to assist the gentleman find employment." Sounds promising.

I have, of course, forwarded those letters - although I hope the couple is wary of people trying to sell what might be iffy services or employment.

Of the responses sent in for publication, I'll include a selection over the next few weeks. I decided to start with your letter because the theme is popular.

No fewer than four readers wrote along similar lines.

Generally speaking, you're right about not having to pay tax on income from private boarders, including student homestays.

Inland Revenue says on its website that "you can choose either the standard-cost method or the actual-cost method to work out whether you have to pay tax on this income.

"The standard-cost method uses an average price for basics such as the cost of food, heating, power and transport. The amount is an average across the country and is inflation-adjusted annually.

"If your income from boarders is less than the standard cost allowed, you will not have to file a tax return, keep records of related expenditure or pay tax."

The current rates are $250 each a week for one or two boarders. If you have three or four, it's $250 for each of the first two, and $204 for each subsequent one.

Some further points from other readers who also suggested homestay students:

• "The payment might cover the grocery and water bill each week. You don't have to supply fancy meals and it's an opportunity to learn about other cultures. Also you can get older students so you don't have the worry of school-age people."

• "I did this myself for several years; in fact I actually shared a room with my teenage son for four months to free up his room for an extra student, and as a result he was able to go on a school trip to China which I could never have afforded myself. I wish this couple a sunnier retirement!"


Work from home

Q: While not in quite as serious a situation as those folks in last week's column, my wife and I are in the same age bracket and also needed an income top-up.

We have a small business that is seasonal plus an elderly mother who needs a lot of time. Our employment options are limited.

Through a friend we were introduced to phone survey work. A basic hourly rate with no outgoings, not even the costs of travelling to a workplace. Not everyone's cup of tea but ...

A: ... But it might appeal. As you say, such work has its advantages.


Options to renting

Q: I would like to suggest that the couple who are bankrupt consider changing their accommodation so that they are not paying rent - by finding a live-in position.

It could be as caretakers, house sitting, caregivers for people who need 24/7 care.

These are usually rent-free and also no bills for power, etc, sometimes even paid as well, and the job can be shared by a couple.

It would mean a lot of searching online and getting in touch with house-sitting agencies, for example.

But they need to do something to get out of the hole, and doing things for other people can help to stave off the blues they sound like they are headed for.

Best wishes to them from an ex-live-in caregiver.

A: Now that's lateral thinking - get rid of the rent and perhaps add extra income. And I like your point about how helping others can help yourself.


Bouncing back

Q: Re your reply to the mature couple who have to start building their nest egg all over again. Many years ago my small company lost half its business in one disastrous week. What to do? I decided that, if I had started out with no business I could do it again.

I told myself, "With my extra experience and knowledge I have more advantages now than when I first started." A positive outcome.

My grandson put me onto a book about finding fresh income sources - Young Bucks by Troy Dunn. He and I are working through each chapter together. That experience inspired me to write my own ebook about entrepreneurship, which is on Amazon.com for $1.

I hope this helps others who are forced to start again from the beginning, whatever their age.

A: An interesting idea, and perhaps more importantly a good point about attitude. That theme comes through in several other readers' letters. More on that next week.

Meantime, another reader's comment about the age issue: "Being 60 does definitely not mean 'no longer able'."


Older babysitters

Q: This is for the bankrupt older couple struggling to get ahead.

Needing a new source of income? Try babysitting! Me and my friends often find it hard to get babysitters.

We typically use girls aged 15-18, but we usually have to drive them home and often they are unavailable at short notice. We pay $12 an hour cash. You could earn $60 a night.

I would love to have a 60-year-old woman on my babysitting roster. And I wouldn't have to drive her home. Good luck!

A: The pay is hardly exciting, but the work and surroundings can be pleasant - if you get the right kids.

Your letter is kind and encouraging. So I'm reluctant to point out that you're making much the same grammatical error as the correspondent I chided a couple of weeks ago. It's not correct to say "Me and my friends", but "My friends and I".

Maybe you did it deliberately, to see if I would bite? Well, I did! Thanks anyway for writing.


Grammatical errors

Q: Good on you Mary. Why do we all tolerate this bad grammar, which now seems to be accepted as common English?

When I tried to correct my grandchildren's grammar when they were younger - for example, "Me and John" - my daughter-in-law told me she was quite happy with the way the children spoke! It's hard being a grandma these days. Keep up the good work and don't drop a stitch.

A: The sad truth is that while the children's mother might be happy with the way they spoke, others might be less than impressed. Grammar grannies have their role to play.

But wait! I don't want to get into an intergenerational war here.


Application responses

Q: Two weeks ago I noted (and agreed with) your grammar correction and the readers' comments last week.

However, appalled as I am by the standard of the English language today, I am even more disgusted at the ignorance of would-be employers who do not have the decency to acknowledge applications from respondents to their job advertisements.

I realise they may often have many applications, but even an acknowledgment of receipt of an application seems to be beyond many, and with the technology available today that is inexcusable.

I couldn't agree more. Why can't recruiters at least send people a standard "Thanks but no thanks" email?

This seems to be a common complaint. Can anyone defend the practice?


Mary Holm is a freelance journalist, part-time university lecturer, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. 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.

- NZ Herald

Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (pref daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

Mary Holm

Mary Holm is a personal finance columnist for the NZ Herald.

Mary Holm is a columnist, best-selling author and seminar presenter on personal finance. She is also a director of the Financial Markets Authority and the Banking Ombudsman Scheme, and holds an MBA in finance. Previously she was business editor of the Auckland Sun and Auckland Star, and has worked for the NZ Listener, Australian Financial Review and Chicago Tribune. She has been called “The nation’s favourite investment agony aunt.”

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