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Fix for 5 years

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  • 16-02-2011 5:36pm
    #1
    Calibos
    Registered Users Posts: 7,807 ✭✭✭


    This one has me perplexed. I thought that the banks were losing money on variable rate mortgages atm never mind trackers. That they wanted people off trackers and that fixed rates were a thing of the past. Didn't I read last week that they were only offering fixed rates to certain people to fulfill contractual obligations but that the new fixed rates offered were a joke to disuade people taking from them.

    Well the parents who are with the E B S just got a phonecall asking did they want to fix their variable rate mortgage as fixed were baing phased out soon. They are 18 months into a 15 year mortage on a variable of about 3.8 or 4% IIRC. The E B S are putting up their variables 0.6% next week are they not. Wouldn't be surprised if they put it up another 0.6% within the next 18 months. The ECB look like putting up rates by 0.5 or 1% in the same period.
    Why are they offering the parents 5.2% over 3 years or 5.6% over 5 years??

    I dunno, I am no expert but does that not seem quite good given the financial stormclouds over us nevermind on the horizon??

    So should the parents fix for the 5 years and assuming that I'm told to tell the parents to grab that fixed rate as fast as they can, can someone explain whats in it for the E B S. I thought they always stacked the deck in their own favour?


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    #2
    Senna
    Registered Users Posts: 8,800 ✭✭✭Senna


    As i understand it, banks can fix rates the same as a bank customer would. Eg. The banks buy a "book" of €100m @ 4% over 5years. They add a margin and then sell it as a fixed rate to customers. They may have bought this "book" of loans last year and when that €100m runs out, they will look to buy another "book" at what ever the rate is on offer at that time (next time it will be a lot more). Banks dont lose money on fixed rates, as they have a fixed margin over the rate they buy it at.

    If a fixed rate loan becomes non-performing, they still have to pay it back at the fixed rate. I think banks are getting worried about their exposure and dont want to be stuck with a higher rate loan just because the customer fixed in the past. If the "book" is too expensive, their better off not buying it, which is why many banks will stop offering fixed rates until these "books" lower in price.

    Thats my layman's understanding of it.


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