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Home arrow Real Estate News arrow General News arrow Mortgage repayment plans get careful

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Mortgage repayment plans get careful
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Saturday, 09 September 2006

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Minister of Finance, Michael Cullen, has announced that savers will be able to divert half of their KiwiSaver contributions to mortgage repayments. This is one of several proposed changes announced to the controversial scheme, whose implementation has been delayed by three months, from April next year to 1 July.

In its proposed new from KiwiSaver will allow contributors to put half of the minimum contribution of 4 per cent of wages towards mortgage repayment.

However standard financial advice for people who have mortgages is to concentrate on repaying their debt before building savings because debt costs more to service than returns available on investments.

However to take advantage of this option it will be necessary for a saver’s scheme provider and lender to provide facilities to do so. Mortgage diversion will be available after a saver has made 12 months of contributions. The Inland Revenue says it will not be compulsory for scheme providers to offer the mortgage facility and savers will have to ask their scheme providers and mortgage lenders if they offer it.

Craig Dealey, general manager of financial adviser New Zealand Financial Planning agreed that the theory was good but was concerned that savers would not aspire to investing more than the amount necessary to repay their homeloans.

Savers should aim for a spread of investments for retirement, said Dealey. Simply relying on a freehold property would not be enough.


Edwina Baniqued

 

 
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