INTEREST RATES

Waipukurau Press, Volume XXVIII, Issue 133, 31 May 1932, Page 3

INTEREST RATES

Ministerial Statement

EXPENDITURE READJUSTMENT

MORTGAGES AND CONTRACTS

The intricate provisions of the in-terest-reducing sections of the National Expenditure Adjustment Act are amplified in the explanatory memorandum recently issued by the Minister of Finance, Hon. W. Downie Stewart. Following is an abbreviated form of the explanations offered: — The purpose of part 111, insofar as it relates to interest, is limited to the reduction of rates of interest payable under mortgages (as defined in the Act) that were in force on April 1, 1932. Nothing in part 111 applies to interest payable under a mortgage that has been executed after April 1, 1932.

Definition of Term “Mortgage.”— For the purposes of part 111 the term “mortgage” has a more extensive meaning than that which is attached to it in ordinary usage. The definition follows closely the definition in the Mortgagors’ Relief Act, 1931, but in adition it expressly includes: —

(1) Company debentures; and

(2) Customary hire-purchase agreements, within the meaning of the Chattels Transfer Act, 1924. Mortgages of Insurance Policies. — Though the term “mortgage” expressly includes mortgages of insurannce policies, it is to be remembered in this connection that the Act has no application to mortgages securing the repayment of principal moneys that are repayable on demand. Whether or not, therefore a mortgage of an insurance policy is within the benefits of the Act, will depend on the terms of the mortgage; if the mortgage is for a term the Act applies; if the moneys borrowed on the security of the policy are repayable on demand, the provisions of the Act as to reduction of interest have no application. Hire-Purchase Agreements Customary hire-purchase agreements are the agreements in general use in respect to the purchase on a system of time-payment of articles c" classes including furniture, pianos, gramophones, sewing machines, motor vehicles, milking machines, reapers and binders, and other machinery, implements and accessories used in the industries of dairying and agriculture. For the p rposes of part 111 of the Act (insofar as it relates to interest) such customary hire-purchase agreements are treated as mortgages to secure payment of the unpaid purchase money, with interest. Section 35 of the Act provides, with respect to such agreements, that if the rate of interest charged on the unpaid purchase money is not specified in the agreement, the rate of interest shall be fixed by a Stipendiary Magistrate on application by either party unless the parties can mutually agree as to what part of the payment is to be treated as interest.

Agreements for Sale and Purchase of Land. —For the purposes of the Act these agreements are regarded as mortgages of the land to which they relate, securing payment of the unpaid purchase money with interest. If it should happen in such agreement that no apportionment is made between purchase money and interest, then the rate of interest can be fixed by agreement between the parties, or by a stipendiary magistrate, in the manner stated with reference to.interest under hire-purchase agreements.

Building Societies’ Mortgages and other Mortgages where Premium is charged.—lt is provided in section 2 9 (3) that moneys payable by a borrower as premium or bonus on a loan (as is the practice with certain forms of mortgages to building societies) shall be. treated as interest accruing from day to day throughout the whole term of the mortgage. Thus if a borrower paid or undertook to pay a premium of £7OO on a loan for a period of 12 i years, that premium would be deemed for the purposes of the Adjustment Act to be spread over the whole term of the mortgage at the rate of £8 a month. In respect of the period of the loan that has elapsed before April 1, 1932, the mortgagor is not entitled to any reduction of the premium but with respect to the period after that date he. is entitled to the appropriate reduction, computed in the manner referred to below. If in such a case there has been an actual cash payment of premium, the rights of the

mortgagor in respect of the excess will be governed by subsection (2) of section 34 which gives him the right to recover the excess by action or to elect to have it credited towards future payments. Such rights must be exercised within three months after the date of payment or three months after the passing of the Act (whichever is the latter). Mortgages not within scope of Act. ■—Part 111 of the Act has no application to the following classes of mort-

gages: (1) Mortgages executed after April 1, 1932. •-

(2) Mortgages securing the repayment of principal moneys that are repayable on demand. This exemption does not cover mortgages which, though originally for a term are now overdue.

Apportionment of Interest

Apportionment of Interest at April 1, 1932. —Where interest has been paid or is payable for a period commencing before April 1, 1932, and ending after that date, an apportionment will be made to satisfy the requirements of the Act (though no specific provisions to that effect are contained in the Act), and in such a case the reduced rate will be applicable only to be the period on and after April 1, 1932. In the making of such an apportionment regard should be had to the provisions of subsection two of section 108 of the Property Law Act 1908, which is in the following terms: —

“All rents, annuities, dividends and other periodical payments in the nature of income (whether reserved or made payable under instrument in writing or otherwise) shall, like interest on money lent, be considered as accruing from day to day and shall be apportionable in respect of time accordingly.”

Minimum Rates of Interest. —The compulsory reduction in rates of interest provided for in the Act is subject to the limitation that in no case is the rate on chattel securities to be reduced below 6 1 per cent per annum or the rate, on other securities (not being company debentures issued free of tax) to be reduced below 5 per cent per annum. The. maximum rate for “tax-free” company debentures is fixed at per cent. In no case does the Act authorise an increase in the rate of interest actually fixed by a mortgage.

Rebates of Interest for Prompt Payment. —Where (as in State Advances mortgages) a mortgagor is entitled to receive a rebate of interest on account of prompt payment, this right is preserved by section 36 (2) of the Act. This does not, however, entitle any mortgagor to a net rate of interest below 5 per cent., but merely preserves the existing margin between the net rate and the rate payable if default in prompt payment is made.