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wonderpup

Teaser Rate Mortgages From The Boe And Fed

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Listening to Obamas slap on the wrists to the bankers today he was very critical of the teaser rate deals done over there- all the option arm stuff.

But by keeping interest rates so low at present, aren't the central banks doing exactly the same thing?- suckering people in with a low starter rate for a year or two before hitting them with a rate hike further down the track?

What's the difference? :blink:

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Guest Steve Cook
Listening to Obamas slap on the wrists to the bankers today he was very critical of the teaser rate deals done over there- all the option arm stuff.

But by keeping interest rates so low at present, aren't the central banks doing exactly the same thing?- suckering people in with a low starter rate for a year or two before hitting them with a rate hike further down the track?

What's the difference? :blink:

There is no difference

In fact, the central banks are the reason the institutional lenders lent money out with such abandon in the first place. By setting base rates so low, the CBs effectively forced the institutional lender's hands. If any of them decided not to take the cheap money on offer and then lend it out to Joe Public, their shareholders would have punished them for not pursuing profits as vigorously as their competitors.

Thus, everyone was dragged to the party whether they wanted to or not. A party that was hosted by the CBs under the direction of government.

Edited by Steve Cook

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Listening to Obamas slap on the wrists to the bankers today he was very critical of the teaser rate deals done over there- all the option arm stuff.

But by keeping interest rates so low at present, aren't the central banks doing exactly the same thing?- suckering people in with a low starter rate for a year or two before hitting them with a rate hike further down the track?

What's the difference? :blink:

Very little. However, in the US, the culture has tended to be for 25 or 30 year fixed rate mortgages. It's only the last few years that 'variable rates' and 'trackers' have appeared, together with introductory discount periods.

In the UK, long term fixes are very uncommon, and the risk with trackers or short-term fixes, is exactly as you say. It's one of the reason why the UK has historically had very large house price booms and busts, whereas this wasn't quite so bad in the US, until all these fancy variable rates/teasers, etc. came along.

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Teaser rate deals are discounted trackers, with a ballooning IR for the remaining years. These are sold in the UK, but they are normally sold to graduates/people who expect there salary to increase quickly.

ie....

you buy a house and your initial IR is 1.5% for 2 years, followed by 8% for 3 years.....

Edited by moosetea

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Teaser rate deals are discounted trackers, with a ballooning IR for the remaining years. These are sold in the UK, but they are normally sold to graduates/people who expect there salary to increase quickly.

ie....

you buy a house and your initial IR is 1.5% for 2 years, followed by 8% for 3 years.....

Too narrow a definition. In comparison to real fixed rate loans and mortgages any open ended interest rate product sold in a world of artificially reduced rates is a teaser rates. This is environment central banks have been promoting, the debt bubble and subsequent crash is the result. They are going for round two to deliver the knockout punch. UK debt is increasing again rapidly. They'lll carry on until the debt levels are utterly unpayable, by then the UK will be finished for good.

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A lot of nonsense is talked about in relation to interest rates.

Low interest rates in themselves are no bad thing. I would have thought this would be self evident but it patently isn't so I'll explain, they entail lower costs for business start up or for those that want to borrow for consumption (which I have no problem with). Just like with any other good or service in the economy its natural to look for the ones that are the most cost effective when in all other respects the products are identical.

Asking for high interest rates makes about as much sense as asking for high taxes. Nobody wants extra and unnecessary costs imposed on them, unless you're a finacial masochist of course. As usual Obama's got it all wrong by pandering to populist opinion.

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