Why does interest changes affect old mortgages?

S

smarthinking

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Say a mortgage is taken out 5 years ago, when there was very low interest rates. The Bank would have borrowed at these low interest rates to give me my mortgage. Why then, when interest rates go up, does the bank increase my mortgage rate? Surely, if interest rates go up after I have drawn down the mortgage, they should not affect my bank and hence me? I know this is wishful thinking, but I just wanted to see what the reasons are .....
 



Banks make their money by using a very basic form of carry trade.

They borrow money from depositors and the wholesale markets over the short-term (3-6 months) and lend to mortgage holders over longer periods (20-35 years).
So banks are always exposed to the short term markets they borrow on
 
If rates go down would you be happy sticking on the higher rate initially offered? Thought not...
 
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