Terminology – Learn the lingo

Official Cash Rate (OCR)

Monetary Policy Tool used by Reserve Bank of NZ (RBNZ) to influence Economic Growth and Inflation since early 1999. The OCR has introduced much needed stability to NZ’s residential mortgage interest rates. Effectively the same method of Fiscal Management used by USA, UK, European Central Bank and Australia (see www.rbnz.govt.nz for more information).

Floating (Variable) Rate

Pricing level is usually set at OCR & 90 day Bank Bills plus lending margin of approx. 200 basis points or 2%.

Fixed Rates

Pricing level is set by Financial Markets themselves based on their view of the future. Their view of the future is influenced by Economic Performance and Interest Rate forecasts. The Lender will then add their lending margin which varies dependent on the Lender and market conditions.

Yield Curve

All interest rates currently available plotted on a graph. The relationship of these rates gives an indication of what might happen in the future.

Risk Premium

NZ is always likely to have higher Mortgage Interest Rates than other 1st World Countries. Due to our geographic location, and the small scale of our financial markets, NZ generally must pay a Risk Premium for funding on International Markets.

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