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Normally yes: in France we also have 30y fixed-rate mortgages (in fact, nobody sane would do variable: there's no upside except for the bank). If the rate gets
by xwolfi 3y ago
Normally yes: in France we also have 30y fixed-rate mortgages (in fact, nobody sane would do variable: there's no upside except for the bank). If the rate gets way lower, you can pay the advance repayment fee and reborrow, so the banks directly just cut your rate, everyone does it. And if the rate goes up, the banks swallow the losses.
There have been discussions in parliament for decades about the prevalence of fixed rates and the cost it has for the banking sector, but it's nearly impossible now to change it. Banks simply have to make less money, and expand abroad if they want to do more predatory variable rates. The French philosophy is that banks should not speculate too much on mortgage profits and accept to make some but not optimal profit there. Suffice to say that our banks are struggling a little bit more than say British banks.
- hartator 3y ago> And if the rate goes up, the banks swallow the losses. Aren’t the mortgages ultimately guaranteed by the European Central Bank? No actual interest risk for the banks.
- judge2020 3y agoNot sure how it works in Europe, but if it's similar to the U.S., the issue is similar to what happened to SVB - they invested a large portion of their cash into low-rate mortgage-backed securities, so when the rates rose, the actual value of the mortgage-backed securities dropped, making it hard to sell them without losing a bunch of money (which was deposits, not their own revenue/profits). The FED did guarantee all money in all accounts - even past $250k - but it's not a great look to be taken over by the fed to ensure money is available for withdrawal to depositors.
- hartator 3y agoSVB was investing Checking accounts money into mid-term bonds. Another kind of scam.
- judge2020 3y agoIt was all within the Fed's fund rate guidelines so I'm not sure how it was so scammy. Or does the the typical bank have a larger amount of short-term investments that can be easily liquidated in case there's a bank run?
- hartator 3y agoCash-equivalent or money market are fine, mid-term bounds are not. > It was all within the Fed's fund rate guidelines so I'm not sure how it was so scammy. SVB people are getting charged with criminal charges.
- judge2020 3y agoThe upside is typically that variable rates are typically lower by one percent or more - for example, my local CU is quoting 6.875% today for a 30 year fixed but 5.5% for a 5/1 arm. But that variability and sudden change in payment when the rate adjusts was apart of what caused the '08 mortgage crisis (played a part in people being unable to afford the higher payments and being foreclosed on).
- NoPicklez 3y agoWelcome to what Australia is dealing with now, increases in interest rates to kerb inflation
- robocat 3y agoFrance is not typical of EU countries. The United States is unusual in the high proportion of long-term fixed-rate mortgages. Long-term fixed-rate pre-payable mortgages used to be the dominant product in Denmark, but low and falling short-term rates have led Danish borrowers to shift to medium-term (one- to five-year) rollover mortgages in recent years. France is the only other country with a majority of fixed-rate mortgages. Unlike the penalty-free pre-payable Danish and U.S. FRMs, French fixed-rate loans have pre-payment penalties (maximum three percent of outstanding balance or three months' interest). German mortgages can be fixed up to 15 years with a 30-year amortization. Quote from "International Comparison of Mortgage Product Offerings" (2010) https://www.mba.org/docs/default-source/research---riha-reports/10122_research_riha_lea_report.pdf?sfvrsn=96779bb4_1 https://www.mba.org/docs/default-source/research---riha-repo...