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Home Sweet Home and Interest-Free


The biblical principal of "as you sow, so shall you reap" is resulting in increasing numbers of Eastern Bay people becoming mortgage free at a statistically young age.

This is according to accountant and chairman of Whakatane-based Liberty Trust Kelvin Deal, who reports the number of people borrowing money from the trust is continuing to grow, both within the Eastern Bay and throughout New Zealand.
Established in the late 1980s, the trust has since lent more than $45 million interest-free to New Zealanders, with almost five million dollars lent in the last year alone.

Kelvin says the concept, where any person is eligible to make regular donations to the trust over an eight-to-10 year period, and are then enabled to borrow interest-free, five times the amount donated, was first considered by former Liberty Life Church pastor Bruce Bruce McDonald.

"Bank interest rates were 18 to 20 percent at the time. It was a huge burden on families, and someone suggested to Bruce that a different and better system of lending, based wholly on biblical principles, could possibly be established," Kelvin says.
The aim of the proposed new system would be to enable New Zealanders to commence early saving for a home, and become debt-free many years earlier than is typical.

Literature for the now long-established charitable trust encourages the responsibility of people to avoid prolonged debt. He says it challenges the Kiwi cultural belief that it's okay to borrow as much as you can without thought to the future, resulting in bank mortgages that typically remain for the whole of one's working life, or longer - with as much being paid in interest as was originally borrowed.

Kelvin says when he was first contacted in 1988 to look over the proposal, he was entirely skeptical. Being unfamiliar with anything similar, he says he couldn't see how it could work. "It seemed too good to be true".

Working on a financial model for the concept though, Kelvin says he was surprised to find everything added up. "At that point, I wasn't entirely sure why it worked, but I could see that it did. I used a different model to retest it, and again, it worked".

Somewhat amazed, he had a colleague go through it, and the outcome was the same. On that basis, he says Bruce asked him to "get a team together, and explore it thoroughly". Twelve months later, with all results favourable, Liberty Trust was launched.
"We commenced with over 100 participants and we thought, 'Okay, that's it, we won't take anyone else'. We felt a huge sense of responsibility because the concept was new. By the end of the second year, fully confident in how things were going, we decided to open it up to others. These days, over 1,000 people are contributing to the Trust."

Kelvin says the concept for interest-free loans is a tool to teach young people the rewards of saving, and how suppressing the desire for instant gratification leads to a sounder financial base - a debt-free home at a young age.

The option is commonly taken up by parents, and grandparents, who join the trust, making payments until children are old enough to work and take them over themselves. "We're seeing second generations of families who have benefitted from their parent's initiative, now doing the same for their own children. And these people are often debt-free by their mid-30s," he says.
The trust works by contributors making weekly donations. "It could be $10, or it could be $200," Kelvin says, with donations able to be stopped and restarted or the amount changed at any time. The total amount donated over an eight-to-10-year period, then enables the contributor to an interest-free loan of five times that amount.

An example from the trust shows how weekly donations of $115 for a period of 10 years will result in a total contribution of $60,000. The contributor is invited to borrow a sum of five times the contributed amount, which would be $300,000 interest-free. Repaying that mortgage at $577 per week results in the mortgage being repaid within 10 years. (The trust prefers that the loan be repaid within 10 years.) The total cost of the mortgage therefore being $360,000.

This compares to a bank mortgage using an interest rate of 6 percent repaid at a comparable rate of $579 a week over a period of 15 years the total cost of the bank mortgage would be $458,246.

In cases where a person donating to the trust, but not yet eligible for an interest-free loan, wants to buy a property at current market rates, Kelvin says they are encouraged to do so, using other means of borrowing. "Once they reach eligibility for a trust loan they can swap their mortgage over".

The Liberty Trust came under scrutiny in 2011 when the NZ Charities Commission de-registered it, stating the trust worked in the interests of everyone, not only "the poor" (thereby not fitting the legal definition of a charity). The decision was then overturned by the High Court, resulting in a first-of-a-kind legal ruling (now studied by law students in New Zealand as the Crown versus Liberty Trust case).

Kelvin says the trust is fully sustainable. "Unlike a bank, we don't borrow, so we have no debt. We don't invest in anything, money just comes in, and is immediately lent out to whoever was next in the order of joining. And an independent actuary - a specialist in the mathematics of risk - has demonstrated that if we suddenly had a situation where no new members joined, the trust would remain viable."

With the ability to assist young people into their own homes with limited debt, as well as enabling support of a small number of charities, Kelvin sees the trust as providing a win-win situation.

"I think it's the best success story in Whakatane".

Eastern Bay Life,
27 October 2017