Raised a ruckus but mayor had valid point

Central Otago Mayor Tim Cadogan. Photo: RNZ
Central Otago Mayor Tim Cadogan. Photo: RNZ
Central Otago Mayor Tim Cadogan spurred spirited reactions when he suggested reverse equity mortgages could be used to pay for his district’s rate increases.

He was accused of being out of touch and a whole lot more.

These increases are, as in many places, whoppers. They average 18.4% overall and much higher in Roxburgh. No wonder some ratepayers — faced as well with hikes in insurance and more expensive food and power — question how they can cope.

Civis, no financial expert but interested in money matters, is aware of the perils of reverse mortgages. Too much cash taken out too soon can lead to ruin. Compounding interest can wipe out the value of the home.

Homeowners can find their choices eliminated. They might discover, for example, that they lack the capital to move to a retirement village once their house is sold and the loan is repaid.

Nevertheless, Civis has some sympathy for Mr Cadogan after reading in the ODT about his reasons, and listening to him being interviewed on RNZ this week.

Mr Cadogan was trying to help those who are asset-rich and cash-poor, to at least offer a possible option for a few ratepayers.

Despite their bad press, reverse mortgages are a useful way to release money in some cases.

Certain older residents in valuable homes might be wise to take this option.

Respected and experienced freelance financial journalist Mary Holm talks a lot of sense, mixing warnings with positive advice.

She has said it is really important to understand how fast a loan can grow. She has suggested they should usually be avoided until later in retirement, preferably at say, 80 or 85. That means the loan will probably grow for no more than 10 or 15 years.

There are exceptions, for example, if you are ill and not expecting to live long. Savings should be used first, and the reverse mortgage only drawn down as needed to minimise that pernicious compounding. Ms Holm says the mortgage could be set to supply monthly amounts for regular expenses, and access to emergency funds when needed.

SBS and Heartland banks are the main sources for reverse mortgages. Be wary of all the fees, like home valuations, application fees, drawdown fees and discharge fees.

MoneyHub NZ has calculated that if you borrow $100,000 at age 65, you will owe about $445,000 by age 80 (using an interest rate of 10% a year). If you reach 85 and need to sell your home and go into care your debt will be about $734,000. The SBS rate this week was 9.95%.

Obviously, anyone considering reverse equity mortgages should get independent legal/financial advice before proceeding.

Some councils allow rates to be deferred, although Civis is unaware of this being common in the South. In such cases, councils will charge interest and fees, but the costs overall will be much less than reverse mortgages.


Language corner this week is about a clear distinction that is often confused.

Regularly, you hear about the "amount of people"? At the risk, once again, of being a pedant, this jars. The number of times (not amount of) these expressions are misused is surprising.

An easy way to remember is that "number of" goes with items that can be counted either individually or within a mass. "Amount of" precedes uncountable nouns.

Hopefully, the amount of time and effort needed to understand the distinction is minimal. Hopefully, the number of minutes required is limited.

It is easy to see, however, why English is so difficult to learn.

Throw in "quantity of" or "quantities of". They are followed by both countable and uncountable nouns.

If readers have particular language or grammar gripes, grizzles or groans, or for that matter quaint quirks and curiosities, they are welcome to email their thoughts.