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Nationalist

Shoud Variable Interest Rates Be Illegal?

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This is just an idea I'm tossing out: Make it illegal to change the interest rate on a loan after the loan has been given. This means all mortgages would be fixed rate for the entire term and credit card companies could only change the rate if the balance was zero, ie, no loan in effect at that time.

Or, it could be legal to reduce the rate but never to increase it.

Hence borrowers would always know what they were letting themselves in for. After all, there aren't many deals where you have no idea how much you will pay when you sign on the dotted line. It's very strange we let money lenders get away with something that would be anathema in other walks of life: "Want to buy a car? Certainly Sir, just sign a blank cheque and we'll write in the amount after you've left the showroom."

Edited by Nationalist

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This is just an idea I'm tossing out: Make it illegal to change the interest rate on a loan after the loan has been given. This means all mortgages would be fixed rate for the entire term and credit card companies could only change the rate if the balance was zero, ie, no loan in effect at that time.

Or, it could be legal to reduce the rate but never to increase it.

Hence borrowers would always know what they were letting themselves in for. After all, there aren't many deals where you have no idea how much you will pay when you sign on the dotted line. It's very strange we let money lenders get away with something that would be anathema in other walks of life: "Want to buy a car? Certainly Sir, just sign a blank cheque and we'll write in the amount after you've left the showroom."

There shouldn't be interest at all - just a fee.

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This is just an idea I'm tossing out: Make it illegal to change the interest rate on a loan after the loan has been given. This means all mortgages would be fixed rate for the entire term and credit card companies could only change the rate if the balance was zero, ie, no loan in effect at that time.

Or, it could be legal to reduce the rate but never to increase it.

Economic consequence: the risk of inflation shifts, and borrowers make automatic huge profits from it while lenders go bust. Moral hazard, anyone? Yep, push it up, screw the economy.

In fact, not entirely unlike what's happened in the last couple of years, with interest rates dropped through the floor and TPTB printing money.

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This is just an idea I'm tossing out: Make it illegal to change the interest rate on a loan after the loan has been given. This means all mortgages would be fixed rate for the entire term and credit card companies could only change the rate if the balance was zero, ie, no loan in effect at that time.

Or, it could be legal to reduce the rate but never to increase it.

Hence borrowers would always know what they were letting themselves in for. After all, there aren't many deals where you have no idea how much you will pay when you sign on the dotted line. It's very strange we let money lenders get away with something that would be anathema in other walks of life: "Want to buy a car? Certainly Sir, just sign a blank cheque and we'll write in the amount after you've left the showroom."

Probably not a bad idea.

In Germany, most people buy property on the basis of a "Bausparvertrag" or "building savings contract". This obliges you to save for a certain period, typically 7 years, and pays a fixed rate of interest. When the contract matures, you are then entitled to borrow an amount similar to that which you have saved at a rate of interest that is also fixed when the contract is signed.

Some of my savings are in such a contract, which matured some time ago. It pays interest that is fixed at 2% and entitles me to borrow the same amount at 5% when I eventually buy a house, whenever that may be.

As a matter of fact, many of my German friends have expressed incredulity that so many people in other countries, such as the UK, are prepared to place themselves at the mercy of a variable rate mortgage.

Edited by snowflux

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Economic consequence: the risk of inflation shifts, and borrowers make automatic huge profits from it while lenders go bust. Moral hazard, anyone? Yep, push it up, screw the economy.

In fact, not entirely unlike what's happened in the last couple of years, with interest rates dropped through the floor and TPTB printing money.

Most mortgages in the US have historically worked on a Fixed rate for 25 years and it worked perfectly well. In fact its only in the last few years variable rate mortgages and teasers became common over there purely because on a sensible fixed rate basis houses were completely unnafordable but the powers that be didnt want them to fall. So variable rates were introduced and now they are like the UK completely up sh@t creek.

THere is an offset though with fixed at 25 years the lender builds in a volatility margin so it is probably slightly more expensive over the 25 years all things being equal but that is offset by the fact the borrower is able to sensibly budget without the worry

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As a matter of fact, many of my German friends have expressed incredulity that so many people in other countries, such as the UK, are prepared to place themselves at the mercy of a variable rate mortgage.

I agree. It's absolutely crazy.

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I agree. It's absolutely crazy.
So talk me through what happens when you paid £100K in 1990 at a mortgage rate of 12%ish and by 2000 rates were 5%. Do you think it's then unfair that people are paying less than half what you are ? Or do you think, thems the breaks and stick with it. Or should you simply be allowed to end that mortgage (paying no fee of course) and taking out a new cheaper one ? So, what about the fact that your bank priced in 25 years of income at 12% - because they borrowed it like that - or do you think they should be forced to lend at base plus 0.5% for 25 years no matter how they themselves are funded..... ?

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So talk me through what happens when you paid £100K in 1990 at a mortgage rate of 12%ish and by 2000 rates were 5%. Do you think it's then unfair that people are paying less than half what you are ? Or do you think, thems the breaks and stick with it. Or should you simply be allowed to end that mortgage (paying no fee of course) and taking out a new cheaper one ? So, what about the fact that your bank priced in 25 years of income at 12% - because they borrowed it like that - or do you think they should be forced to lend at base plus 0.5% for 25 years no matter how they themselves are funded..... ?

... The same bank which is now offering a 7% rate to customers when the base rate is at 0.5%? Yes. F u c k them.

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the bankers just package up the mortgages into bonds anyway. If you lending money for 25 years, you should just get a 25 year bond at a fixed rate. The fact that you get a 25 year mortgage but need to switch every 2, 3, 5 years is stupid, it only benefits the bankers, not the ones holding the mortgage for the whole term.

Bankers couldnt make short term profits if they sold you a 25 year mortgage.

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I don't see why variable rate loans should not be legal - if you want a longterm fix, you can get one, if you don't, shy should you have to?

I am happy with most of our borrowing being BOEBR + x%, where x is usually between 0.5% (the best one) and typically around 1.2% - 1.5% (this is for BTLs with lenders like Woolwich, Skipton etc).

I wouldn't want to tie into a longterm fix.

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This is just an idea I'm tossing out: Make it illegal to change the interest rate on a loan after the loan has been given. This means all mortgages would be fixed rate for the entire term and credit card companies could only change the rate if the balance was zero, ie, no loan in effect at that time.

Or, it could be legal to reduce the rate but never to increase it.

Hence borrowers would always know what they were letting themselves in for. After all, there aren't many deals where you have no idea how much you will pay when you sign on the dotted line. It's very strange we let money lenders get away with something that would be anathema in other walks of life: "Want to buy a car? Certainly Sir, just sign a blank cheque and we'll write in the amount after you've left the showroom."

If you want a mortgage product like this get a capped rate. It's not brain surgery.

The more important point is that the lender should ensure the customer understands the product they are taking out, which clearly the sheeple don't.

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I don't see why variable rate loans should not be legal - if you want a longterm fix, you can get one, if you don't, shy should you have to?

I am happy with most of our borrowing being BOEBR + x%, where x is usually between 0.5% (the best one) and typically around 1.2% - 1.5% (this is for BTLs with lenders like Woolwich, Skipton etc).

I wouldn't want to tie into a longterm fix.

For those of us who are unlikely to be adversely affected by any interest rates required to control inflation a tracker is much much cheaper over the long term than a fix.

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It would be great to at least have the option of 25 year fixed rate mortgages, but to have them, we would really need to have them funded through bonds (CDOs) as banks normally borrow at short term variable rates.

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the bankers just package up the mortgages into bonds anyway. If you lending money for 25 years, you should just get a 25 year bond at a fixed rate. The fact that you get a 25 year mortgage but need to switch every 2, 3, 5 years is stupid, it only benefits the bankers, not the ones holding the mortgage for the whole term.

Bankers couldnt make short term profits if they sold you a 25 year mortgage.

plus they risk losing their shirts should you pay it back early in some cases.

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This is just an idea I'm tossing out: Make it illegal to change the interest rate on a loan after the loan has been given. This means all mortgages would be fixed rate for the entire term and credit card companies could only change the rate if the balance was zero, ie, no loan in effect at that time.

Or, it could be legal to reduce the rate but never to increase it.

Hence borrowers would always know what they were letting themselves in for. After all, there aren't many deals where you have no idea how much you will pay when you sign on the dotted line. It's very strange we let money lenders get away with something that would be anathema in other walks of life: "Want to buy a car? Certainly Sir, just sign a blank cheque and we'll write in the amount after you've left the showroom."

just get rid of the money lenders ability to create money out of thin air

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It would be great to at least have the option of 25 year fixed rate mortgages, but to have them, we would really need to have them funded through bonds (CDOs) as banks normally borrow at short term variable rates.

you can easily get a 25 or 30 year fixed rate in the US. THere is more moneu in making you take a new fix with a 1k upfront fee every 3 years. I believe that Britania offer a 15 year fix but it is >7%.

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The trouble is, 25 years is such a long and unpredictable time period. I would rather have a liability that increased and decreased roughly in a similar way to my ability to repay it (salary).

As it is, interest rates SHOULD be high in boom times and low in recessions, broadly like my earnings. However, if the rate was fixed for 25 years it could get well out of line with my earnings (e.g. a 25 year fix at 8%pa if we get stuck in a Japanese deflationary trap would be a killer)

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This is just an idea I'm tossing out: Make it illegal to change the interest rate on a loan after the loan has been given. This means all mortgages would be fixed rate for the entire term and credit card companies could only change the rate if the balance was zero, ie, no loan in effect at that time.

I definitely think variable rates should be illegal.

If we were to get technical,then charging interest should be illegal if our head of state were employing the letter of the law properly.

I think a "commission" basis would be far fairer...

it'd be a good comprimise between no capital flow,and the lenders being given a chance to get a bit back.

say a flat fee of £5 per £100 lent per year or something.....i

applicable to morgages also.

and I also think there should be a cut-off point for debts,where all debt is relieved and people start with a clean slate....having somebody chase after you for outstanding loans years and years later is not very nice.

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This is just an idea I'm tossing out: Make it illegal to change the interest rate on a loan after the loan has been given. This means all mortgages would be fixed rate for the entire term and credit card companies could only change the rate if the balance was zero, ie, no loan in effect at that time.

Or, it could be legal to reduce the rate but never to increase it.

Hence borrowers would always know what they were letting themselves in for. After all, there aren't many deals where you have no idea how much you will pay when you sign on the dotted line. It's very strange we let money lenders get away with something that would be anathema in other walks of life: "Want to buy a car? Certainly Sir, just sign a blank cheque and we'll write in the amount after you've left the showroom."

Jesus Christ. You want to force people into inflexible capped rate fixed mortgages and make every other kind of mortgage illegal???

What are you? Some kind of Nazi?

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