Cairns Lockie Mortgage Commentary 22 June 2007
Cairns Lockie Mortgage Commentary
Issue 2007 / 10 22 June 2007
Welcome to the tenth fortnightly Cairns Lockie Mortgage Commentary for 2007. We aim 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/newsletters.htm
The Money Market
This afternoon (3pm on 21 June 2007) the money markets were at the following levels:
Official cash rate
90 day bill rate 8.36 (unchanged)
1 year swap rate 8.47 (down from 8.48)
3 year swap rate 8.29 (down from 8.31)
10 year bond rate 6.78 (up from 6.67)
Kiwi dollar 0.7626 (up from 0.7503)
What is Vendor Finance?
Vendor finance is where the owner of the property leaves in some funds, generally by way of a second mortgage for a short period of time - from a few months up to two years. The vendor is normally trying to assist with the selling of the property. The interest rate charged can range from nil% up to 15% but quite often can be at the first mortgage rate. In the past, vendor finance was more common than it is now, due largely to the current buoyant property market where most houses are selling reasonably quickly. It is a useful tool to assist a vendor with a sale, or a purchaser who may find funding a property in the short term a bit more difficult. We expect vendor finance to be used more in the future.
An increasing number of people are using trusts to hold assets. By some estimates there may be 250,000 to 300,000 trusts in existence in this country. One of the most important issues with trusts, is to ensure they are managed in the correct manner. We welcome initiatives in trust education to assist trustees in this regard. Recently an interesting book has been written by Mark Maxwell entitled "Trusts - A Kiwi Sham". The author focuses on getting the management of trusts correct, so that if they are challenged, for example by a creditor or the IRD, they would be able to withstand this challenge. This book is relevant and easy to read. It can be found in most bookshops at $29.55.
Diversify Your Lenders
Financial commentators suggest that share market investors should have diversification in their portfolios. We think that the same should apply to property investors. If you are planning to purchase say four rental properties, it would be advisable to have them all located in different suburbs. The principal of diversification should also apply to your borrowing sources. We see situations where an individual owns a number of rental properties plus their own home and all their borrowings are with the same lender. What happens if that lender, due to changes within the economy or with a different view on New Zealand, changes its lending policy on rental properties or larger exposures? That lender may become increasingly difficult to deal with. One solution is to diversify or increase your number of lenders. It would be wise to consider a non-bank such as Cairns Lockie, that can offer an alternative to your main lender plus some enhanced product features including full redraw facilities and ten years' interest only.
Our Deposit Rates are most attractive.
Our subsidiary company, General Finance Limited, is looking for deposits. It offers a range of terms to investors, ranging from 6 months to 5 years. Our headline rate is for 2 years at 10.15%. There are special rates available for deposits of over $50,000. We use your funds to provide short term bridging types of loans. All loans are secured by way of first or second registered mortgages over residential real estate. We welcome your enquiries and support. Our new prospectus will be available soon. If you would like one, please let us know.
Our current mortgage interest rates are as follows:
Variable rate 9.95%
No Financials Home Loan 10.55
Jumbo Loan 9.95
One-year fixed rate 9.56
Two-year fixed rate 9.40
Three-year fixed rate 9.40
Five-year fixed rate 9.32
Line of credit facility 10.05