Dr Cullen says "Buy Shares!"

[Placebo]

http://www.stuff.co.nz/stuff/0,2106,3197602a10,00.html

No doubt Mark Weldon is jumping for joy at this pronouncement, and Cullen also seems to be encouraging NZers to back NZ companies.

It seems Cullen is buying into the argument that there is a housing "bubble" which poses a future risk, and that more diversification into shares would help mitigate that risk. But would it?

If people took his advice it is likely most would seek to buy in through managed funds.

[duncan macgregor]

Lets see cullen put our money where his mouth is first. Most people have no interest in shares, and only remember the bad times. Cullen places my money in fund managers hands, much against my wishes who invest it in companies overseas to compete against our own companies. Now he does an about face and tells us to support our own market.
My own opinion is anyone that invests with fund managers lacks a business brain, cullen included. Buy your house at least if it all hits the fan you have a roof over your head. The cullen return so far is pathetic the monkey and the dartboard easily beat it.
macdunk

[port hills]

Hey Macdunk,
What return is the Cullen fund achieving?

[duncan macgregor]

The monkey or the average sp was about 6pc by memory in front. i did post the figures before cant remember off hand but round about that. macdunk

[port hills]

quote:Originally posted by port hills

Hey Macdunk,
What return is the Cullen fund achieving?


Cheers Macdunk,
Thats not too impressive is it! :(

[The GrandMaster]

quote:Originally posted by Placebo

It seems Cullen is buying into the argument that there is a housing "bubble" which poses a future risk, and that more diversification into shares would help mitigate that risk. But would it?

If people took his advice it is likely most would seek to buy in through managed funds.



And couldn't this advice in itself also in some way lead to the aforementioned "bubble"

[Steve]

quote:Originally posted by The GrandMaster

And couldn't this advice in itself also in some way lead to the aforementioned "bubble"

What comes first, the chicken or the egg?

THE KING says " GREAT "..[^][^][^]

[coge]

If Cullen says "Buy", it must surely be time to "Sell"

[whiteheron]

Great advice Dr Cullen , but unfortunately about two years late !

The last two years have shown great advances in share prices but I would bet my last dollar that the next two years will not

From this point on , as the market is now fairly fully priced , any investment in shares will require VERY careful consideration
There are still good buys to be had but they need to be searched for and you need to know what you are doing

THE KING says for some people now is the time to start better have NEVER.. [^][^]

[duncan macgregor]

Im on your side as usual your majesty. Great opportunities exist even in a down market. It is obvious manufacturing is out with china taking over. agricultural produce will be a winner, power companies . ports , etc. Retail is out, tom, dick and harry will bring in containers of cheap imports and sell them at cost with a money back gaurantee of co****. Briscoes being the exception your majesty, they are inventing continueous sales to solve that little problem. macdunk

THE KING says Duncan your great at hidden talk about nothing the world will go on with or without China ,, Dare to say it would be better without Duncan.. [^][^]

[rugila]

"Encouraging" me to invest my hard-earned funds with sticky-fingered and often not very competent managed fund owners/directors/managers??

Not for me thanks.

There's only one person who should decide where my funds should go, and that's me!!!

[pimpit]

hahah yeh it is like uncle Helen saying "vote labour"

THE KING says rugila stick with it friend.. [^]

[Macrob]

He should say also "BUY Made in New Zealand" if there is still something left

[bongo66]

Anything this moron says I do the opposite...:)

[ratkin]

Another sign the market is too high.
Very silly advice from Cullen, how will the people he encourages feel when the market tanks? They will not feel like voting labour thats for sure

[port hills]

Hey ratkin,

How is betfair treating you?
I've had a look at the site and am intreaged but I haven't dipped my toe in yet. :)

[James K]

Yesterday Cullen told the world the dollar was too high. Now he tells people to buy shares. Why doesn't he stop getting off on telling others what to do, and start doing the right thing my investors, exporters and the like, and reduce our taxes. That might take care of the dollar and our propensity to save, with the one stone!

[bongo66]

quote:Originally posted by James K

Yesterday Cullen told the world the dollar was too high. Now he tells people to buy shares. Why doesn't he stop getting off on telling others what to do, and start doing the right thing my investors, exporters and the like, and reduce our taxes. That might take care of the dollar and our propensity to save, with the one stone!


He is a snivelling socialist, telling people what to do is a substitute for sex-he gets off on it...[}:)]

[Placebo]

Well I wouldn't quite put it that way, but cutting taxes is definitely not in Labour's genes. They are experts at spending your and my money, hadn't you figured that out yet!

But I agree. I'd much rather have my money in my hands than taken off me by the good doctor to be redistributed at the hands of state socialism. Not that I'm a raving right winger, but with things the way they are and forward projections the very least he could do was raise the 39c ceiling.

But I'm not holding my breath!

I wouldn't expect NZers to take his advice. Most people when you mention shares, all they can respond with is 1987 crash, tech wreck and all that. To me his shares comments smack of Marie Antoinette Syndrome -- People can't save, so maybe they should buy shares instead (Let them eat cake!). What Dr C doesn't seem to have cottoned on to is that people don't have spare cash to set aside (or they don't have the incemtive to do so). So tax cuts or some other form of incentive (like one-for-one employer schemes) would be a good step.

[Bling_Bling]

The funny thing is that most NZers dont even know what a share is let alone invest in the market. Dr Cullen may have to print a booklet for the average Joe teaching them how to invest in the equities market. But first, the average Joe needs to learn to save, before they have anything to invest. Saving money is not the cultural norm for Nzers.

Well colour me pink Bongo! I thought you wld have shown a bit more generosity & philanthropy given that you've had another good year on the untaxed & relatively unearned sharemarket.
I say raise the tax rate for the >$80k income bracket to fund more social workers, counsellors & primary school teachers (with or w/out sandals, brown cardies or walksocks!) When the inevitable beneficial social changes have been made then the Great Navigator Helen and her trusty sidekick Dr C can cut taxes cos' things will be better for all.
Mwah wmah[:X][:X]

[spector]

If Dr Cullen wants New Zealanders to get rich he should encourage them all start their own government funded university. He should also be encouraging more students to commit more crimes so they can go to jail and get job training without having to worry about crippling student loans.

[duncan macgregor]

Cullen is doing his best guys, give him a break. He invests our money with fund managers that cant even deliver the market average. They invest it overseas to keep us lean and mean competeing. If we were all rich you lazy bastards will stop working, and wont pay tax. He wants us to sell the homestead, and buy air nz. We can all live happily ever after in dire poverty working in competition with china. macdunk

[rmbbrave]

quote:Originally posted by Bling_Bling

The funny thing is that most NZers dont even know what a share is let alone invest in the market. Dr Cullen may have to print a booklet for the average Joe teaching them how to invest in the equities market. But first, the average Joe needs to learn to save, before they have anything to invest. Saving money is not the cultural norm for Nzers.


Right on cue Diana and the Herald is here to help.

Share investing can be easy

24.02.05
by Diana Clement


Finance Minister Michael Cullen wants more people to buy shares. Here's how you go about it.

Q: What are shares?

A: When you buy a share you get a small slice of a company such as Telecom NZ. As a result of your ownership you are usually paid a portion of the profits as dividends. If the share price goes up, you can also benefit from a capital gain when you sell.

Q: What is the difference between shares and funds?

A: A fund pools your money with that of other people and invests it across a range of companies. You can choose to invest in managed funds that concentrate on a certain sector, geographical region or style of investing, or passive funds, which aim to track the ups and downs of a stock exchange index by holding the same numbers of each share as the index they are tracking.

Q: How do I buy shares and managed funds?

A: You can buy shares listed on the NZX through a stockbroker. Passive or "Exchange Traded Funds" such as the FONZ and MOZY can be bought in the same way as ordinary shares. To buy a managed fund you can do this through a financial planner, direct from the fund provider such as Liontamer or Fisher Funds or buy via websites such as FundSource (see link below).

Q: What does it cost?

A: ASB Securities' online share dealing services - one of the cheapest around - costs $29.45 per trade including a stock exchange fee. If you wanted to speak to a real live stockbroker at a firm such as First NZ Capital you would pay around 1 per cent for your trade, subject to a $50 minimum and the $5 stock exchange fee. Managed funds typically charge an up-front fee, which can be around 5 per cent and also an annual management fee. These charges can eat into the long-term growth.

Q: Do I need to have a lot of money to invest in shares?

A: You can spend as little as a few hundred dollars on a parcel of shares. However, the dealing charges and stock market charge makes it more economic to buy larger parcels of shares and funds.

Q: Are shares risky?

A: Unless you buy a capital guaranteed fund, you risk losing some or all of the money you invest in the stock market. Companies' share prices can crash, profits and consequently dividends can suffer and companies can go bankrupt. As a general rule of thumb, the higher the return, the higher the risk. But providing you spread your investments wisely, the risk can be managed.

Q: Isn't it safer to put my money in the bank?

A: If you deposit money in term deposits or savings accounts you're unlikely to lose it. Nor will it keep pace with inflation. Over the long term, the stock exchange is seen as providing a better return.

Q: Can I invest in overseas shares?

A: Diversifying some of your investments out of the New Zealand market can help spread the risk. You can buy overseas shares through stockbrokers here - but the charges can be unpalatable. If you prefer, you can open an account with a share trading service in the country you wish to buy shares in. You may find it easier to buy units in a NZ-based managed fund that invests overseas.

Q: How do I learn more about shares?

A: Read books, follow online discussions at websites such as Sharechat (see link below), attend seminars and take an interest in the news published in the business section of the Herald and other publications.

* Diana Clement is a freelance

[Greyhound]

I wish the good Dr was more specific and urged Kiwis to buy CUBE CAPITAL shares..:D

[Macrob]

Did Dr Cullen mention specifically that we have to buy NZ shares or just follow his example to buy shares on overseas markets?

[Macrob]

I have a second though and have agreed that Dr Cullen have a clever and futuristic vision. Since whole share market game leads to money changing hands there is not point play on our internal market. Let’s bet on US market and bring profit back to home. As a nation we need a little bit of education but here Te Wananga may help:D I propose: 1) a free laptop 2) some cash to start ;for every person willing to play on Stock Exchange

Macrob they may need more than the Fifty Bucks I started with but don't need a computer. Some coloured pencils, graphpaper, newspaper and a brain is all you need.

[Major von Tempsky]

Why is Diana Clement still a freelance writer writing regularly for the Herald Weekend Money section?
She shows hints of knowing enough to make some serious money and be out playing tennis/sunning ourselves on the beaches like some of the rest of us....
Oh, I get it, she's into charitable works like serving Xmas lunch at the annual Auckland City Mission and wrapping up leftovers in brown paper parcels and sending it to the starving poor in Africa.....

[duncan macgregor]

MVT, nothing wrong with that i think but plenty wrong with people that think there is. When it is time to leave this world will you go in the knowledge that you did your little best to make it a nicer place. macdunk

Value in both those last two posts but who is Diana Clement and does her c.v. have cred'?

[Paper Tiger]

Notice that the Real Estate Institute (http://www.stuff.co.nz/stuff/0,2106,3198748a13,00.html) has had a good go at the good Doctor.
"So Dr Cullen is recommending that we buy in at the top, when a correction is possible."
Property had been a "good performer", with median house prices rising 41 per cent, from $175,000 to $265,000, between 2002 and 2005.

[The GrandMaster]

but they would wouldn't they!

[Elwood]

The good Dr seems to think everyone has the skills, time and desire to invest. At least 955 don't and those that do are already there. The only thing his comments may achieve si that Joe Average may llok at saving a bit more and may look a bit further afield than his term deposit account. He would be far better off putting his money where his mouth is and providing some direct financial incentives for saving.

[Mingeathinaikos]

quote:Originally posted by Paper Tiger

Notice that the Real Estate Institute (http://www.stuff.co.nz/stuff/0,2106,3198748a13,00.html) has had a good go at the good Doctor.
"So Dr Cullen is recommending that we buy in at the top, when a correction is possible."
Property had been a "good performer", with median house prices rising 41 per cent, from $175,000 to $265,000, between 2002 and 2005.





Isn't everything reportly 'at the top' at the mo.....NZX, house prices, nz dollar.[:p]

[duncan macgregor]

They are right as well. The average joe blow has a snow balls chance in hell of a return like that on the market. Stick to what you understand. macdunk

[port hills]

Mingeathinaikos

You're right to be sceptical, I recall in the '90s the Dow was supposidly at its top at 5000, 6000, 7000, 8000, 9000 right through to its true top at around 12000.
That doesn't mean that the doom merchants aren't right this time but there is always different "experts" with opposing views.
:D

Dr Cullen did say that the REINZ were being mischeivous and misleading , and he wanted people to save more. As for the NZX being high and at the top - well who knows apart from Ratkin? People may have more equity in their homes now but they still need to live somewhere and their homes are not providing any income unless they're leveraging the value of them in some other income-producing asset. Unfortunately some people are spending the extra equity in their homes on disgressionary crap like travel, tummy-tucks and tequila.
Economists like Dr Morgan believe that NZers have too much tied up in R.E. - well he would wldn't he as he's a fund manager too and presumably houses are not in his (balanced) portfolios.
Bag away.[:p]

[port hills]

Probably what Dr Cullen is saying (maybe anyway) is that having everyone over 50 years old own one rental prperty plus their home is inefficient. Instead most of the smaller investors should start with shares and leave residential property investing to less investors who are more full time profesionals with portfolios of numbers of houses.

I doubt that Cullen is against buying ones own home but against having your only investment being either the most expensive home you can afford or a more modest home plus a rental.
ie All your eggs in one basket with little time or knoledge to know what you are buying, who you've got as tenants etc.

Of course as we all know shares have many pitfalls also and to do well takes a lot of time as well, even then nothing is certain.

I still think that for most paying off their own mortgage first is the best option but boreing.

[Macrob]

Longtack

Unfortunately some people are spending the extra equity in their homes on disgressionary crap like travel, tummy-tucks and tequila.
===========================================
Usually people don't have any extra equity in their homes, just finishing paying more interest on servicing bigger debts. The only winners are 1)banks (interest) and 2)REA- real estate agents (commision), 3)builders (they can charge more the the same today).

[whiteheron]

If you have a mortgage the best thing that you can do by a country mile is pay it off as quickly as possible

Once you have achieved that look for investment opportunities , but not before

Simple , but it really works

There are very few investments that will return more than the interest rate on your mortgage tax paid on an ongoing basis and there is no downside to paying off your mortgage

[Major von Tempsky]

Beats me....where did I say I was against charity? I collect for the blind, work a few hours a week as a volunteer for a christian charity & &...yet now MacDunk thinks I am anti-charity.
I was merely musing aloud that if Diana Thingummy is so expert then how come she's still a reporter....and then the solution struck me....she's obviously doing it as a charitable work....as the Herald wouldn't pay more than pocket money.....
Of course a different analysis applies to Mary Holm & I guess....as they evidently don't have any expertise I spose they gabble enough to get paid for it and eke out a miserable existence....
While one is on this sort of subject....I was wondering why the SST pays Rod Oram to flog central planning and the Labour Party machine line.....then the answer struck me....the SST is part of the same empire as the Press/Dominion/Post and as they have Gareth Morgan on those they're making some sort of weird effort at "balance"....
Hands up anyone who still bothers reading the tortured Rod.....

[OldRider]

The reality of Cullen's statement to me, is that investment in business, shares or otherwise, has a chance of producing economic growth, whilst investment in residential real estate probably has very little chance of this.

Whiteheron makes a valid point, to extend it even further,if circumstances can be arranged to make it possible, a massive enhancement to the potential of one's childrens assets can be made by lending to them interest free from a family trust. Whilst it is true the value of the trust will not be as great when distribution occurs, overall family value, at that time will be far greater.

[StainlessSteelRat]

quote:Originally posted by whiteheron

If you have a mortgage the best thing that you can do by a country mile is pay it off as quickly as possible


Not according to all those books, videos and games that Kiyosaki has been flogging.

Personally, i am trying to follow his path more closely than the "get mortgage, pay mortgage - start saving" philosophy that pervades as the way to get ahead.

[duncan macgregor]

MVT, may the fleas of a thousand camels infest my arm pitts for getting it wrong ABDAB WE NEED MORE CAMELS. macdunk

[blackcap]

quote:Originally posted by whiteheron

If you have a mortgage the best thing that you can do by a country mile is pay it off as quickly as possible



Im gonna disagree with that statement. If I can borrow at say 8% on my mortgage and can invest and return 13% + elsewhere why would I want to pay my mortgage off as quickly as possible?

Why would any business borrow if paying off debt was the best way to go?

[whiteheron]

SSR

Unless you invest extremely wisely or become very lucky then I believe that it is most unlikely that you can achieve a net tax paid return on long term equity investments that will exceed the savings in mortgage interest by directing your surplus funds into mortgage repayments

Why take on extra risk when you can achieve the same result without any risk at all ?

I know that there will be cases where the equity investment route will achieve a better return , but not on average I believe , especially for investors with little knowledge of the markets

There is nothing like seeing your mortgage reduce and consequently your mortgage interest and so on and so on

If you are convinced that you have above average investment skills then go for it , but dont be surprised if you find the going tough , especially after a market downturn

[blackcap]

Whiteheron

Not necessarily talking equity investments, just invesment in general. If your rule applied, then commerce would die and no one would borrow because; (its always better to pay off your mortgage as quickly as possible, implying that you probably shouldnt get one in the first place)

[James K]

Whiteheron, I suspect there are many people on here who earn excellent sharemarket returns year on year, that on average are well above the interest rate on their mortgage. Without wishing to gloat, I certainly have and have kept detailed records (to proof it to myself) for the almost 20 years I have been sharemarket investing.

Of course, the fact that some do outperform mortgage interest rates, does not mean all will do well. Certainly most of the balanced units trusts, and many of the equity unit trusts, have failed to do so, over the long run.

[limegreen]

I think it's although worth considering the frequently close relationship between mortgage interest and what you would pay for the same property. I do not claim to own my house. I just have a bank as a landlord. If my investments ever end up performing close to my mortgage, that's when I'll give up. In the interim, vive le difference.

[duncan macgregor]

I have mortgaged a house, to mortgage a house, to mortgage a house, to mortgage a house. I then had a sell out at the top of the cycle, and was mortgage free. In hindesight i used other peoples money to make money, the point being would the money i started with be better used on the share market. The answer to that is a very definite no.
If i had borrowed the same ammount of money to invest in the sharemarket how would i have got on?. I would not be allowed to borrow that much for starters, the interest rate would be higher, and the 87 crash would have sent me bankrupt. I beat the market average in shares, but wont borrow money to do it, even although the last few years i would have made heaps more than i did. To make real money with very little risk property will always come out on top. macdunk

[KJ]

I'm with James K-I would have thought that there are many investors who,year after yr return considerably more than the after tax cost of borrowed money (many on ST lead you to believe that they would be in this category)

I am not saying it's for everyone but most experienced investors should have the confidence and ability to succeed.

[Cooper]

quote:Originally posted by OldRider

The reality of Cullen's statement to me, is that investment in business, shares or otherwise, has a chance of producing economic growth, whilst investment in residential real estate probably has very little chance of this.

Whiteheron makes a valid point, to extend it even further,if circumstances can be arranged to make it possible, a massive enhancement to the potential of one's childrens assets can be made by lending to them interest free from a family trust. Whilst it is true the value of the trust will not be as great when distribution occurs, overall family value, at that time will be far greater.


Exactly Oldrider, Cullen is trying to increase the country's capital stock so there is more money for business investment and a higher rate of growth.

This is maybe the third (?) mention we've had from Cullen on this topic (including mentions of taxing capital gains on property). That's not accidental... I think we'll see some policy after the election regarding this. To be honest I like the idea, although I know I'm going to be a minority.

[StainlessSteelRat]

quote:Originally posted by whiteheron

SSR

Unless you invest extremely wisely or become very lucky then I believe that it is most unlikely that you can achieve a net tax paid return on long term equity investments that will exceed the savings in mortgage interest by directing your surplus funds into mortgage repayments

Why take on extra risk when you can achieve the same result without any risk at all ?


I've just done some quick calculations based on a BNZ rapid repay loan (they have a calculator on their website), but i'm sure the figures are the same for all the banks.

Let's assume the following:
Mortgage: $200,000
Mort int: 7%
Excess avail for investment (ie: what you would be repaying to reduce the loan quickly): $20,000
Investment return: 6% (assumed to be nett)

These numbers look fairly average, though i welcome any thoughts on altering them.

So:
According to the BNZ calculator, a rapid repay loan would take 17yrs to pay off, in which time the "slow payer" would have amassed $598k via investment using the above formula (6% compounded return).

So, the fast payer has a freehold house, the slowpayer still owes about $105k on the mortgage.

The fast payer begins to invest $3k a month (mortgage payment + excess available) at the same 6% as the slow payer. S/he does this for 8 yrs until slow payer has paid his/her house off.

Slow payer:
Investment - $1.1m
Income pa. - %65k

Fast payer:
Investment - $377k
Income pa. - $21k

According to the BNZ calculator, fast payer saves $82k interest, but that pails into insignificance against the loss of compounding that slow payer has gained by starting his/her portfolio early.

YMMV. :D

[port hills]

Stainlesssteelrat,

Maybe I'm stupid (some would say probably) but I don't understand. [:I]

Surely both rates are compounding so 7% net of tax compounding must outstrip 6% net of tax compounding.
I mean if in year one you pay $20k off your mortgage then in year 2 because the the minimum payment on the remaining $180k borrowed will be less than the minimum on $200k you're surplus avaliable to invest/pay off capital will be greater than $20k.

You must also realise that to receive 6% net of tax depending on your tax top rate may mean you must earn 10% gross. Easy done the last few years but don't forget to throw in the odd 1987 to bring your average down. [xx(]

On top of this I'm pretty sure 7% is a lower mortgage rate than the 20 year average. [xx(]

Don't get me wrong paying off the mortgage first will not be the best corse of action for everyone, but it would be for the majority of NZers given the financial education provided by our schools. [xx(]

[hiawatha]

I would assume fluctuations in house prices are taken into account when calculating the rate of inflation/deflation. I could be wrong but I would think fluctuations in stock prices are not taken into account.
hiawatha

[SueJ]

Major von Tempsky will have forgotten he said this, but anyway -


quote:
While one is on this sort of subject....I was wondering why the SST pays Rod Oram to flog central planning and the Labour Party machine line.....then the answer struck me....the SST is part of the same empire as the Press/Dominion/Post and as they have Gareth Morgan on those they're making some sort of weird effort at "balance"....
Hands up anyone who still bothers reading the tortured Rod.....

I pay attention to Rod Oram, he provides excellent value. When he recommends a course of action, I do the opposite. If he says the situation is black, it's bound to be white. He's a sort of reverse bellwether; a trend-unsetter.

[Winston001]

Dr Cullen is trying (and this must be quite difficult for a Labour academic) to begin a seachange in New Zealander's investment thinking. When Gareth Morgan, Don Brash etc tell us to invest in business, Kiwis write them off as fatcat big-business types, scheming with Fay Richwhite clones to rip us off.

But when a Labour leader says it - there is a chance some notice will be taken by the general population.

Given that we are a young immigrant nation, the lack of enthusiasm for business and investing in business is suprising. Usually immigrant societies are vigorous and entrepreurial. The Ozzies have it and the Americans have it in spades!

Unfortunately for the good Doctor, change is only likely if second et seq properties are capital taxed.

Also, we have a very rational love affair with property - because it works. Or at least has for the past 35 years. Yes, there are crashes, but unlike the stockmarket (Enron, Equitycorp), houses seldom fall to a nil value. Overgeared people get caught, but would fall faster and further in a sharemarket than property. So the risks are lower and easier to understand.

I'm a fairly passive share investor, as are the vast majority. Hence the thousands of mutual funds around the globe. I have, through good fortune been on the right side of property. With shares however, I've held one good one out of every 10 over the past 25 years. Eg. Wrightsons - Challenge merger in 1980. It took 20 years before Fletcher Energy and Fletcher Building arose like a phoenix from the dogs ashes that came from the original merger. What a wasted investment. Ordinary folk don't know when to hold 'em and when to fold 'em.

So I agree with the Minister of Finance but I cannot see how he is going to effect the seachange without a very big rudder - capital gains tax anyone?

[StainlessSteelRat]

quote:Originally posted by port hills

Stainlesssteelrat,

Maybe I'm stupid (some would say probably) but I don't understand. [:I]

Surely both rates are compounding so 7% net of tax compounding must outstrip 6% net of tax compounding.

I mean if in year one you pay $20k off your mortgage then in year 2 because the the minimum payment on the remaining $180k


You would think so, but it's not the case. The reason is that even though you pay an extra $20k not all of it is applied against the principal (from what i see). That being the case, the amount that is applied against extra interest is presumably the difference between it being a good thing and a bad.

Remember also, that because you're compounding the effect is greatest, whereas the reduction of principal only applies once.

[port hills]

S.S.Rat

Does the 'BNZ rapid repay' loan have some kind of penalty interest or charges for paying it off faster than minimum?
Otherwise how does paying an extra 20k off in year one result in
extra interest? (only a bank could make that sound logical) :)

If that is the case then there are alternatives out there, I know at Kiwibank all floating rate loans can be paid off anytime with no penalty. (however they are currently charging 8.25% on these)
Fixed loans at Kiwibank allow you to pay off lump sums of upto 5% each year with no penalties.I'm not sure if upping your weekly/fortnightly payments beyond 5% incurs a penalty or not.

Have a good day my corrosion free rodent buddy. :)

[blockhead]

Blockhead used a rapid repay BNZ facility a while back, it is set up with a term, say 10 years and the limit reduces to nil over that term, at any time in between you can draw to the limit or pay the balance off entirely with no penalty.

[StainlessSteelRat]

quote:Originally posted by port hills

S.S.Rat

Does the 'BNZ rapid repay' loan have some kind of penalty interest or charges for paying it off faster than minimum?
Otherwise how does paying an extra 20k off in year one result in
extra interest? (only a bank could make that sound logical) :)

If that is the case then there are alternatives out there, I know at Kiwibank all floating rate loans can be paid off anytime with no penalty. (however they are currently charging 8.25% on these)
Fixed loans at Kiwibank allow you to pay off lump sums of upto 5% each year with no penalties.I'm not sure if upping your weekly/fortnightly payments beyond 5% incurs a penalty or not.

Have a good day my corrosion free rodent buddy. :)




I don't know about the penalties for early payment, but you are being charged interest on the outstanding principal every day - albeit a small amount.

I don't even pretend to understand how compounding works - it appears to me to be like Quantum physics, an arcane and evil work of the devil (it must be if banks use it to such great effect :D)

All i know is that the figures bear out the fact that starting your investment at the earliest possible opportunity seems a much better strategy than delaying it even for one year.

Perhaps someone skilled in actuarials can provide an insight for us all.

SST just a rough calculation to show you the compounding power of a mortgage that every extra dollar you pay off in the first year of a thirty year mortgage saves you TEN Dollars.

[rugila]

quote:just a rough calculation to show you the compounding power of a mortgage that every extra dollar you pay off in the first year of a thirty year mortgage saves you TEN Dollars.

I don't think this is a very useful approach.

If taken literally it suggests that everyone should pay off the entire mortgage in the first year (and thus "save" themselves ten times the mortgage principal amount).

Or, to similar effect, it implies a rational person should never take out a mortage at all, since if they let it run its full term they would lose nine (or whatever depending on the current interest rate) times the original mortgage amount (the ten times loss minus the one off gain from getting the mortgage funds in the first place).

Relevant to the decision to take out a mortgage in the first place, and how much to pay off in any particular time frame, is whether the present value of the ten dollar loss over the years is greater or less than each one dollar of the proposed mortgage.

I think it is well accepted that a dollar received (or spent) in a few years time does not have the same value as a dollar received or spent today. It all depends on your personal rate of time discounting as balanced against the interest rate of the mortgage.