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Send your questions to susan.edmunds@rnz.co.nz
When receiving NZ Super and travelling overseas, if you come back within 30 weeks, the pension is still paid. Can you comment if this 30 weeks is cumulative or example going overseas three times in a year for two months each time, or does 30 weeks start each time you go overseas?
Emma King, acting general manager for international disability and generational policy at the Ministry for Social Development says the 30 weeks is not cumulative.
"The 26-week period starts at the beginning of each trip a superannuitant makes. If the superannuitant does not return within 30 weeks, they are not entitled to the first 26 weeks of payment. In these cases, they are required to pay back the 26 weeks of NZS received.
"The four-week period between 26 weeks allows for MSD to contact the superannuitant and verify their circumstances. A superannuitant does not have to pay the 26 weeks of NZS received if their return is delayed due to circumstances beyond their control that they could not reasonably have foreseen before their departure. Superannuitants in this situation can apply for payments under the general portability provisions while overseas. Ordinarily they would need to be in New Zealand when they apply."
When very young I got burned by having a table mortgage loan on a car. I found funds to repay it early but discovered the interest had been front loaded and it cost more to clear than expected.
I see the majority of housing mortgages in NZ are table mortgages with periods from six months to five years. Table mortgages reduce the regular payment amounts to make them affordable. But over the longer term cost more than floating mortgages if at the same interest rate. Banks usually charge more for floating and by my calculations if you hold a mortgage for the full term they work out the same. However, the floating mortgages allow you to pay off more (without penalty) if you can as you go and this can greatly reduce the overall amount you pay.
There are also break and establishment fees for mortgages which can make changing providers expensive and stressful.
So my question is are table mortgages actually good? Given the short terms available for fixing interest rates, what advantage do they actually give?
There's a bit going on in your question, so I went to Claire Matthews, a banking expert at Massey University. She said, because you might have confused a few different types of lending here, she wanted to start by reviewing some of the types of loan available.
"From the description provided about the car loan, this appears to be what is referred to as a Rule of 78 loan. Essentially the interest is calculated in full up front and added to the principal to give the total amount to be repaid," she said.
"If the loan is repaid early, the Rule of 78 is used to calculate the refund. Let's use a simple example of a loan of $1000 with an interest rate of 5 percent to be repaid over 12 months. The interest amount of $50 is added to the loan to give a total of $1050 to be repaid, which would require repayments of $87.50 per month.
"If the loan was repaid early, say after three months, then the refund of interest is 45/78 of the interest or $28.85 - 78 comes from the sum of one to 12 for each of the 12 months in the year, while 45 is the sum of one to nine being the remaining months. This is a much more favourable return to the lender than would be earned under the simple interest approach that is usually used, which would see the borrower pay about $11.50 if the loan was fully repaid after three months. The Rule of 78 was used in the past, but primarily for personal loans rather than home loans, and to the best of my knowledge is not now used."
When you talk about a "table" home loan, that's a reference to the structure of the home loan, not the interest rate charged or the time you're fixing the interest rate for.
In that context, a table loan is one where the repayments stay the same throughout the term of your loan (although they can change as interest rates do). At the start, your payment is mostly interest, and over time, more of the payment goes to principal.
"The opposite of a table loan is generally seen to be a reducing loan. A reducing loan has much higher payments at the start of the loan because the amount of principal included in each payment remains the same, and the total payment amount slowly reduces as the interest required for each payment decreases due to the reduction in principal.
"The reduction in interest for each payment is initially greater for the reducing loan because a much greater proportion of principal is being paid. This means that over the same term a reducing loan will see less interest paid in total."
If you can afford the higher repayments of a reducing loan, you could make that payment on a table loan and reduce the loan term considerably, she said.
"When I investigated this in the 1980s when we bought our first home, we could reduce the loan term from 30 to 15 years, and that reduced term meant a big saving in interest. Again, I'm not sure that any banks these days offer reducing loans, so the choice would more likely be between a table loan or a revolving credit, where the latter is like a giant overdraft.
"When it comes to interest rates, the choice is largely between fixed and floating. A fixed rate is set for a specified period of time, usually six months to five years, while a floating rate can change, with a notice period, at any time. Floating interest rates are generally more expensive, but as the reader notes there is a greater ability to make additional repayments when the loan has a floating interest rate. Being able to make additional payments is good, because it allows the borrower to repay the loan more quickly and reduce the amount of interest they pay. However, fixed rates allow for certainty in terms of payments for a period of time."
So to answer your questions - a table mortgage is probably the only sort you can get, unless you want revolving credit. And the advantage of fixing an interest rate is that you have some protection if rates rise, and some certainty about what you need to pay.
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