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Replacement of multi-tiered rates of interest with single rate

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35AC.10(1) If:

(a) a person is the borrower in respect of a subsidised advance or an amount owed to the Bank in relation to a specified portfolio asset; and

(b) apart from this section, 2 or more different rates of interest would be payable on different parts of the balance of the advance or amount;

the following single rate of interest is instead taken to be payable on the balance:

(c) if the blended interest rate (see subsection(2)) for the advance or amount is less than 4.5% per year – 3.75% per year;

(d) if the blended interest rate is less than 6.85% per year but not less than 4.5% per year – 4.5% per year;

(e) in any other case – 6.85% per year.

(2) This is how to work out the blended interest rate for the advance or amount:

Method statement

Step 1.For each different rate of interest payable, multiply the rate by that part of the limit of the advance, or of the limit of the amount, on which the rate is payable, and total the results.

Note: However, if that limit is nil, see subsection (4).

Step 2.Divide the total by the limit of the advance or amount.

Step 3.Express the result as a percentage rate per year and round the rate up or down to 2 decimal places (rounding 0.005% up). This is the blended interest rate for the advance or amount (subject to Steps 4 and 5).

Step 4.If:

(a) the result from Step 3 is less than 6.85% per year but not less than 6.67% per year; and

(b)apart from this section, the different rates of interest payable on the different parts of the limit are 3.75% per year, 7.25% per year and 10% per year;

  • the blended interest rate is instead 6.85% per year.

Step 5.If:

  • (a) the result from Step 3 is less than 4.5% per year but not less than 4.45% per year; and
  • (b) apart from this section, the different rates of interest payable on the different parts of the limit are 3.75% per year and 7.25% per year;
  • the blended interest rate is instead 4.5% per year.

Note: Steps 4 and 5 are needed because the amortisation of the limit of the advance or amount over the term of the loan or contract can cause small temporary deviations from the average of the various rates of interest over the term. Steps 4 and 5 prevent these deviations from affecting the calculation of the blended interest rate.

(3) This is an example of how to work out the blended interest rate for an advance or amount:

Example: Assume that the limit of an advance is $4,000. Interest is payable at the rates of 3.75% per year on the first $1,000, 7.25% per year on the next $1,000 and 10% per year on the last $2,000 of that limit.

The Step 1 calculations are:

($1,000 x 3.75%) + ($1,000 x7.25%) + ($2,000 x 10%) = $37.50 + $72.50 + $200 = $310

Under Step 2, the $310 is divided by the total limit of $4,000, giving a result of 0.0775.

Under Step 3, that result is expressed as a percentage: 7.75% per year.Step 4 does not apply, because the blended interest rate is too high.Step 5 does not apply, because the blended interest rate is too high and in any event because the rates of interest in question are not the ones specified in Step 5. Therefore, the blended interest rate for the advance is 7.75% per year.

(4) For Steps 1 and 2 of the method statement in subsection (2), if the limit of the advance or amount at the time concerned is nil, then, instead of nil, use the amount of the limit from when the advance was first made, or when the amount first became owing to the Bank.

(5) This section applies despite anything in any certificate of entitlement or in any subsidised advance contract or portfolio mortgage, portfolio contract of sale, portfolio supplementary agreement or other portfolio agreement.

(6) This section is subject to section 35AA (which will sometimes further reduce the rate of interest payable).

(7) If this section would increase the total amount of interest payable on the balance of an advance or amount over the term of the advance or amount, then this section does not apply to that balance.