Mortgage Rates Are Peaking

21 June 2002

Today Cairns Lockie Limited decreased their fixed rate mortgages for a second time in a week. On average our fixed rates have decreased by around a quarter of a percent.

Someone on a standard 20 year table mortgage of $150,000 will now pay $23 less per month if they decided to fix today (compared with last week).

Interest rates are peaking as the yield curve is becoming flatter. In most circumstances fixed rates are higher than floating rates. If we have a steep yield curve, fixed rates are considerably higher than floating rates, and it is likely that floating rates will increase. If the yield curve starts to get flatter, as it is now, this is telling us that floating rates are peaking or will peak in the near future.

Why is this happening, when there has been a lot of talk that interest rates are expected to increase? There are several reasons: Our currency has appreciated reasonably strongly against most currencies over the past few months. A rising currency dampens down inflation, and lower inflation equals lower interest rates. The much talked-about overseas recovery looks as if it will take a little longer than expected. Overseas interest rates will be low for some time yet and this affects our interest rates.

Our current fixed rates are:
Quick start 1 year 7.35%
Regular 1 year 7.66
2 year 7.92
3 year 8.04
5 year 8.16

Cairns Lockie Limited is a mortgage banking company specialising in residential and residential investment lending. It has a strong internet presence through its site http://www.emortgage.co.nz

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