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Cairns Lockie Mortgage Commentary

Release Cairns Lockie

Welcome to the seventh issue of the Cairns Lockie Mortgage Commentary for 2000. This is a fortnightly electronic newsletter which aims to keep you informed on developments at Cairns Lockie, Mortgage Bankers and the mortgage market in general. Previous issues of this commentary can be found on our website http://www.emortgage.co.nz

The Money Market

This evening (5.00 pm on 19 April) the money markets were at the following levels:

Official cash rate 6.00% 90 day bill rate 6.50 1 year swap rate 7.05 3 year swap rate 7.50 10 year bond rate 6.84 Kiwi dollar 0.4975

Official Cash Rate increases

As expected by many market commentators, the Reserve bank has increased the Official Cash Rate (OCR) by 25 basis points to 6.0%. In explanation, the Governor cites strong growth in the economy over the past six months and a fear of inflation. Inflation for the March year was 1.7%. In the last quarter, the major inflation contributor was the increase in petrol prices. The increase in the OCR will have an effect on mortgage rates. Floating rates will rise by 25-40 basis points over the next few weeks. The impact on fixed rates will be minimal.

Clients Benefit From a Lag in Rate Increases

We increased our floating rate last week (to 7.65%) some three weeks after the major trading banks moved their rate to 8.10%. Not only do our clients benefit from a lower rate, they also benefit from the lag in our putting rates up. Over the last 15 months, our floating rate has averaged 71 basis points (100 basis points equals 1.0%) below the major trading banks. Our rates have ranged from 45 to 140 basis points below the banks. If you had borrowed $200,000 from us a year ago, you would have saved $1,420 in interest.

Inflation in Europe

With inflation being one cause of the Official Cash Rate increase it is interesting to compare our inflation with other countries. New Zealand does not fare too badly. Here are our inflation figures compared with the major European countries. % (per annum)

Ireland 4.6 Spain 3.0 Italy 2.4 Germany 2.1 New Zealand 1.7 Holland 1.5 France 1.5

The average for Western Europe is 2.0%

The Benefits of Compounding Interest

Every investment advisor talks of the benefit of compounding interest. If you have investments you should reinvest all the dividends and interest to increase your wealth as quickly as possible. But how far will this go. If someone had done this successfully hundreds of years ago they would now own the whole world. Or look at another example which was quoted in the internet journal " Good Returns" - In 1973 there were 48 registered Elvis Presley impersonators. In 1993 there were 4,000. At this rate of compounded growth, in 20 years time, one in four people, worldwide will be an Elvis impersonator. Enjoy your Easter break.

Our current interest rates are as follows

Variable rate 7.65% Two-year fixed rate 8.65 Three-year fixed rate 8.75 Five-year fixed rate 8.90 Line of credit facility 8.00

Regards William Cairns James Lockie


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