Fixed Rate Mortgages

S

sjcon29

Guest
Hi

Im on a 5 year fixed rate and as the economy contracts so are the rates. My rate is 5.6%. The current variable rate is 4.2%. Is there any way of getting out of this fixed rate without paying 10K. Does anyone know if there will be legislation down the road which will ban all fixed rates? Your help will be much appreciated on this as im being ripped off at the moment

Thanks
 
You most certainly are not being ripped off. You chose a fixed rate and you wouldn't be moaning about your fixed rate if rates had gone the other way. Why would there be legislation banning fixed rates? There is nothing remotely illegal or wrong with them.
 
What's wrong is that ordinary people are obliged to choose what type of rate they want with no possible knowledge of future ECB movements, or, more importantly, their own future income. That is not an informed choice and it never can be. What's wrong is that our mortgage rates are set by the ECB, who does not take Irish mortgage holders interests into account in any way, the banks, whom the taxpayers/mortgage holders are now bailing out and the bond markets, who again we have no control over. It's wrong that we don't have the option of reasonable long term fixed mortgage rates as our continental EU neighbours have.

The mortgage holder owns the risk of the banks, through the government guarantee, but also holds the risk of rates rising/unemployment/foreclosure while providing the banks with yet more funds to sit on as the ECB drops rates. Given the idiocy and corruption demonstrated by banks in general, and Irish banks in particular, are those funds better off in the black hole of banking, or being spent by the OP in the economy? Freedom of choice in contract is a myth where the parties have completely unequal bargaining status and knowledge. Right or wrong is a bigger question than: 'You signed it, you live with it'.
 
mallow said:
What's wrong is that ordinary people are obliged to choose what type of rate they want with no possible knowledge of future ECB movements, or, more importantly, their own future income. That is not an informed choice and it never can be. What's wrong is that our mortgage rates are set by the ECB, who does not take Irish mortgage holders interests into account in any way, the banks, whom the taxpayers/mortgage holders are now bailing out and the bond markets, who again we have no control over. It's wrong that we don't have the option of reasonable long term fixed mortgage rates as our continental EU neighbours have.

The mortgage holder owns the risk of the banks, through the government guarantee, but also holds the risk of rates rising/unemployment/foreclosure while providing the banks with yet more funds to sit on as the ECB drops rates. Given the idiocy and corruption demonstrated by banks in general, and Irish banks in particular, are those funds better off in the black hole of banking, or being spent by the OP in the economy? Freedom of choice in contract is a myth where the parties have completely unequal bargaining status and knowledge. Right or wrong is a bigger question than: 'You signed it, you live with it'.
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in fairness to the banks, they also have no way of forecasting future interest movements. One of the fundamental reasons that banks want to phase out tracker mortgages is that in recent months, they've lost money on them as the Inter Bank lending rate is higher then the ECB rate.

I can't argue with the view that the banks have a lot to answer for over what has come to light in the last 12 months, but in fairness, is it really their fault that the OP signed a fixed rate mortgage for 5 years. If the ECB raised interest rates to 6% and you had a fixed mortgage for 5.6%, would you go in and ask the bank to raise it because you were "ripping them off"

Our mortgage rates are not set by the ECB, they are significantly influenced by the ECB I acept, but they are not set by the ECB and banks have(with the exception of trackers with no collars or fixed rate mortgages) the option of applying or not applying ECB interest rate changes. For example, Ulster Bank did not apply the recent full ECB cut to variable rate holders. Furthermore it is naive to think that the only thing that should influence ECB policy on interest rates is mortgage holders, it is far more complex then that.

In terms of the OP's position, I'm sorry to say but they signed a contract possibly at a time when there was significant competion in the market place between banks to get mortgages sold. People had a free choice to make as to buy or not to buy and who to use to fund the purchase.
 
The interbank lending rate went higher than the ECB rate partly because the banks supported bubbles and ran their businesses badly. We now own the entire of the banks' risks. If that is not being 'ripped off' I don't know what is.

I didn't say that the only thing that should influence the ECB are mortgage holders. I simply pointed out the fact that it does not influence them. I made no comment at all about what should or should not influence the ECB. My point was that rates and income are out of every mortgage holders control. Individually, you can blame the mortgage holder for their decisions all you like. The collective result of those individual decisions affects us all. The OP signed a contract without possibly knowing whether or not they could comply with the terms for the course of the contract. If we followed your logic that it was a 'free choice' then only public servants with guaranteed secure incomes could ever sign such a contract and buy a home. How is a choice that is made in the complete absence of such vital information a free choice?
 
mallow said:
The interbank lending rate went higher than the ECB rate partly because the banks supported bubbles and ran their businesses badly. We now own the entire of the banks' risks. If that is not being 'ripped off' I don't know what is.

I didn't say that the only thing that should influence the ECB are mortgage holders. I simply pointed out the fact that it does not influence them. I made no comment at all about what should or should not influence the ECB. My point was that rates and income are out of every mortgage holders control. Individually, you can blame the mortgage holder for their decisions all you like. The collective result of those individual decisions affects us all. The OP signed a contract without possibly knowing whether or not they could comply with the terms for the course of the contract. If we followed your logic that it was a 'free choice' then only public servants with guaranteed secure incomes could ever sign such a contract and buy a home. How is a choice that is made in the complete absence of such vital information a free choice?
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The bank also signed a contract without knowing if the OP could comply with the terms for the course of the contract. They accepted a risk of the OP not being in a position to make the repayments hence why there is an increasing amount of repossessions

Taking out a mortgage with a mortgage provider is a free choice, no one is forcing the individual to do so and no one is forcing them to use a particuler provider. Are you saying the OP did not have free choice in deciding to fix their rate. ? Why did they not go for a variable or tracker mortgage at the time?
 
The risk the bank takes is not comparable with the risk an individual takes. A bank is a corporate entity, not a human being who has a home to lose. The bank charges the borrower a rate commensurate with the risk they took. The borrower therefore pays the bank for the risk the bank is taking. The fact that banks have proved incompetent in measuring risk does not mean that they are not capable of doing so.

Beyond that, you are ignoring the fact that the risk the bank took is now owned by the taxpayer. Mortgage holders are tax payers. The OP now holds both the risk he took and the risk the bank took. If by 'free choice' you mean that he did not have a gun to his head, then yes, you are correct, he was not forced. However, the parameters of the choices he was given were not agreed by him. The banks set the parameters of choice in rates. The economy sets the parameters of choice in his income. The average citizen can have no control of and is unlike to have much real knowledge of either. The parameters of choice offered to the OP and every other mortgage holder, were limited to taking serious risk, which he cannot possibly evaluate, or never buying a home. You call that freedom? The parameters of the banks choices are limited by the fact that if they made the wrong choice, their risk can be, and is, transferred to the taxpayer, including the OP. I know which set-up I'd choose. 'Freedom of choice' is a bigger question than you imply.
 
mallow said:
The risk the bank takes is not comparable with the risk an individual takes. A bank is a corporate entity, not a human being who has a home to lose. The bank charges the borrower a rate commensurate with the risk they took. The borrower therefore pays the bank for the risk the bank is taking. The fact that banks have proved incompetent in measuring risk does not mean that they are not capable of doing so.

Beyond that, you are ignoring the fact that the risk the bank took is now owned by the taxpayer. Mortgage holders are tax payers. The OP now holds both the risk he took and the risk the bank took. If by 'free choice' you mean that he did not have a gun to his head, then yes, you are correct, he was not forced. However, the parameters of the choices he was given were not agreed by him. The banks set the parameters of choice in rates. The economy sets the parameters of choice in his income. The average citizen can have no control of and is unlike to have much real knowledge of either. The parameters of choice offered to the OP and every other mortgage holder, were limited to taking serious risk, which he cannot possibly evaluate, or never buying a home. You call that freedom? The parameters of the banks choices are limited by the fact that if they made the wrong choice, their risk can be, and is, transferred to the taxpayer, including the OP. I know which set-up I'd choose. 'Freedom of choice' is a bigger question than you imply.
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so what would you suggest?
 
ive got it,
im going to ring my bank and tell them due to me being a tax payer,
i am willing to pay back 1 euro for every euro i borrowed,
thatll show them.
and if they dont like it well tough.
 
You can put in a call to my bank while you're at it. I'll pay them back 1 euro and 1 cent for every euro I borrowed. How do you like that eh??
 
mallow said:
The risk the bank takes is not comparable with the risk an individual takes.
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Of course not but unless you have half a mil in your back pocket what else can you do if you want to buy? Such is life and if it's the case that the individual doesn't know enough about bank rates etc to decide on a mortgage then they should consult an independent financial advisor, that's what they're there for. Personal responsibility has to come into it and no one, banks or individuals can know for certain what's going to happen in the future in terms of rates and employment.
 
Ciaraella said:
Of course not but unless you have half a mil in your back pocket what else can you do if you want to buy? Such is life and if it's the case that the individual doesn't know enough about bank rates etc to decide on a mortgage then they should consult an independent financial advisor, that's what they're there for. Personal responsibility has to come into it and no one, banks or individuals can know for certain what's going to happen in the future in terms of rates and employment.
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That's my point - 'Such is life' is the context of our choices. That context has not always been the same, it changes constantly, it is not like the law of gravity...

An independent financial advisor could not have told the OP that trackers would disappear, LIBOR would skyrocket and the ECB would cut to historic lows. Nor could they, or anyone else, tell you how secure your job or your pay is. Those are pretty fundamental things to know when committing to a mortgage. And they are unknowable as you say. So in order to buy a home you must enter into a contract whose risks you cannot understand. That is, as you say, life. The consequences of those decisions however are not just 'personal'.

A bank cannot have 'personal responsibility' because it is not a person. If responsibility means suffering the consequences of your actions then the banks clearly are not doing so. Mortgage holders are suffering and will suffer the consequences. The entire economy will suffer from the burden of negative equity and debt levels which each mortgage holder 'freely' took on.
 
Mpsox:
Well I'm an anarchist so to answer that in more than a sentence would get this thread kicked out to Letting Off Steam for being off topic! That would be unfair to the OP.

I do think that effectively telling people that they made their bed and now have to lie in it is not good enough. It ignores the context in which all of our decisions have to be made and the reality that each individual choice about risk affects the entire economy.

Even if the entire population studied economics and finance those choices still cannot be informed choices. When banks repeatedly measure risk incorrectly how can an individual be expected to do so correctly? Since Black Swans are by definition not predictable, these 'free contracts' which cannot estimate risk properly can only ever cause instability and periodic waves of repossession and bankruptcies. Those are things that real human beings with lives and families suffer from, not banks.
 
mallow said:
Mpsox:
Well I'm an anarchist so to answer that in more than a sentence would get this thread kicked out to Letting Off Steam for being off topic! That would be unfair to the OP.
.
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So in your anarchist world, how would I borrow the money to buy a house and from whom would I borrow it from?
 
As I said, if I answer that question here the post will be moved to a frequent poster only thread for being off-topic and that is not fair to anyone. Although it is obvious enough that you cannot separate politics from economics, the Mods on this site (and any other) won't allow a discussion about money/finance/economics to move into politics. People come here for advice about money. Most have no interest in politics as such and don't want to hear it. It doesn't matter how inseparable the two subjects are. The answer to your question is out in cyberspace if you want to find it.
 
So be it if the post is moved! All I can understand to be your point is that no one knows what can happen in the financial world and that it's not fair on the ordinary punter but unless you save up and buy a house with cash then of course you need to borrow from banks which aim to make a profit and who's interest rates are subject to the rise and fall of the economy.
 
Ciaraella, If the post is moved, the OP will be excluded, as will I. For my part I don't care but the OP went to the trouble of posting and does not deserve to have it derailed by others without his having a further say in it.

My point, and the reason I posted here, was not to explain anarchism. Most of what I've said has been said by the staunchest defenders of capitalism also. My point is that there is a common tendency to say to those who have made economic choices that turn out badly that it was their free choice and they must take responsibility for it. For example, the Irish in the 19th century 'freely chose' to subsist on potatoes and so had to take responsibility for the consequences- i.e. they must suffer the consequences. It is a response that is completely lacking in compassion. It also ignores the inter-relatedness of each individual action. It's a kind of 'I'm all right Jack' individualism. The choice made by the OP to get a fixed rate, and by many others not to, will affect their lives massively. It also affects the economy you and I live in massively. So responses that amount to 'you chose it, you suffer it' are insanely short-sighted. It's about the nature of risk and who bears it. You're ignoring the fact that we taxpayers (and the OP)bear the bank's risks now. That's not your average 'rise and fall of the economy'.
 
mallow said:
Ciaraella, If the post is moved, the OP will be excluded, as will I. For my part I don't care but the OP went to the trouble of posting and does not deserve to have it derailed by others without his having a further say in it.

My point, and the reason I posted here, was not to explain anarchism. Most of what I've said has been said by the staunchest defenders of capitalism also. My point is that there is a common tendency to say to those who have made economic choices that turn out badly that it was their free choice and they must take responsibility for it. For example, the Irish in the 19th century 'freely chose' to subsist on potatoes and so had to take responsibility for the consequences- i.e. they must suffer the consequences. It is a response that is completely lacking in compassion. It also ignores the inter-relatedness of each individual action. It's a kind of 'I'm all right Jack' individualism. The choice made by the OP to get a fixed rate, and by many others not to, will affect their lives massively. It also affects the economy you and I live in massively. So responses that amount to 'you chose it, you suffer it' are insanely short-sighted. It's about the nature of risk and who bears it. You're ignoring the fact that we taxpayers (and the OP)bear the bank's risks now. That's not your average 'rise and fall of the economy'.
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So are you suggesting then that the OP should be entitled to move to a lower interest rate mortgage then what he is currently on because he made what has turned out to be a wrong decision in the first place.?
If the situation was reversed, would you also allow the bank to do likewise?
 
Mpsox said:
So are you suggesting then that the OP should be entitled to move to a lower interest rate mortgage then what he is currently on because he made what has turned out to be a wrong decision in the first place.?
If the situation was reversed, would you also allow the bank to do likewise?
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I would never faff around with trying to reform this bit or that bit of capitalism so I can't really answer the question. Arguing from the point of view of capitalism though, there is a clear argument to be made that the excess money the bank is currently earning from the OP (over their cost of funds) would be put to better use in the economy by his spending (or indeed saving) that money. The banks at present are simply black holes of wealth destruction.

It's rational from the bank's point of view to sit on that money rather than loan it out again but that rational decision by banks worldwide is creating deflation. I know plenty will argue that that's a good and necessary thing, but our esteemed elected representatives the world over disagree. And since they allegedly represent us, the general public must disagree also. They would rather the banks continued to lend to the mythical 'credit-worthy' borrower. In the absence of that, they would prefer if the OP could spend that money in the local economy.

The bank and the mortgage-holder are not in the same position. If the situation were reversed the bank would lose money. As we have seen, the end result of banks losing money is that the bank's losses are handed over to the taxpayer. If you 'allowed' the bank to break fixed rates and charge higher ones, the end result would only be different in that the burden of the banks' losses would be placed on all individual mortgage holders with fixed rates rather than the taxpayer in general. Since mortgage holders would be unable as a whole to fund covering that loss, that would not solve the problem. Only the taxpayer has the funds to fill the gap (of course we don't have the money, but in theory...). So to avoid banks failing the taxpayer must take the loss. Same end result. The parties to a mortgage contract are not in an equal bargaining position. By any stretch of the imagination.
 
sjcon29 said:
Hi

Im on a 5 year fixed rate and as the economy contracts so are the rates. My rate is 5.6%. The current variable rate is 4.2%. Is there any way of getting out of this fixed rate without paying 10K. Does anyone know if there will be legislation down the road which will ban all fixed rates? Your help will be much appreciated on this as im being ripped off at the moment

Thanks
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I've definitely seen it on other threads where the poster was allowed switch from fixed to variable without penalty.

Far from banning fixed rates there should be incentives towards long term fixed rate mortgages.

I have plenty of friends who locked in on 3 - 5 year fixed rates of 3% a few years ago.

Typically you'll pay a premium for the certainty of a fixed rate so over the long run they are costlier than variable but it can go either way.
 
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