Question on Bank mortgage cut off fees

[flyingcrocodile46]

Banks are justifying charging huge cut off fees as high as (one instance quoted on Campbell live as $48k for a $820k mortgage) 5.8% because of the difference between what they would have made and what they are now likely to make.. as a return on re-investing the money.

Why isn't anyone pointing out that the loss the banks are trying to cover.. are actually just a drop in forward earnings? No different to the drop in forward earnings that is affecting EVERYONE ELSE.

Why are we all accepting that banks have the right to force their customers to protect the banks forward earnings from the effects of the poorly balanced seesaw that the international financial system built (the system that they are participating decision making members of), when EVERYBODY ELSE (incl other types of business's) have to accept a loss in forward earnings, redundancies, mortgagee sales and bankruptcies?

Is anyone aware of any evidence that banks have actually paid cut off bonuses to their customers when they sold their house and terminated a 6% or 7% mortgage only to replace it with a new mortgage at 9% or 10%? Or is it ok for banks to reap extra (risk free) profit at the expense of others as a result of their double standards??

Are we all so f#cking stupid that we placidly grab our ankles and accept this additional rogering whilst they continue to get fat by sucking every drop of fiscal blood from our futures?

Why aren't we all shouting out these questions?

btw.. i don't have a mortgage

[Winston001]

Ok......

When you borrow money - any money, you enter into a contract with the bank. If it is a mortgage you normally can choose between floating rate (which I have = 10.5% interest), fixed rate for a period of time, and capped rate.

Floating means you pay the daily base rate and take the risk of interest rises but also the benefit of falls. It's worked for me, but thats just luck. More importantly under a floating loan, you can repay lumps of money at any time. It is just a very big overdraft. No penalties.

A fixed rate means you borrow at a set interest rate for a fixed period of time - often 3 years. If you repay early, you pay a penalty. You are told this up front. It is a contract.

A capped mortgage isn't offered by all banks. Essentially the rate and period are fixed but if interest rates drop, your rate goes down. If interest rates rise, your rate never goes above the agreed cap rate.

So people are now moaning about penalties for early repayment. What would you say if you had a fixed mortgage and the bank suddenly said "times are tough, we are increasing your interest rate"?

Get stuffed!! Fair Go, Campbell etc would be all over it. Its a contract.

Folks are funny......

[Tank]

Folks are funny......

Indeed - But you never hear them shouting it from the roof tops when rates go up and their capped rate is saving them money.

[Winston001]

One more thing to consider: your mum and dad have $50,000 invested in a bank term deposit at 8.9% for 3 years. That is a contract too. The bank can lend the money for 3 years to you on a mortgage.

If you repay after 2 years, and interest rates have dropped (as they have), the bank has a problem. They must still pay mum and dad 8.9% but new loans are at 8.5% so what does the bank do? Go to mum and dad and say, "bad luck, we'll have to drop your investment rate....."? Like hell.

So the bank charges you an early repayment penalty of 0.4% to cover the forward loss. No mystery, no surprise.

[Winston001]

Indeed - But you never hear them shouting it from the roof tops when rates go up and their capped rate is saving them money.

Damned right.

And we never heard about this moaning when people were rushing around buying property at ever increasing prices. They were falling over themselves to borrow money. So much in fact that NZ banks had to go off-shore to find the money. Which in turn drove up our currency.......

[Clockwork]

Is anyone aware of any evidence that banks have actually paid cut off bonuses to their customers when they sold their house and terminated a 6% or 7% mortgage only to replace it with a new mortgage at 9% or 10%? Or is it ok for banks to reap extra (risk free) profit at the expense of others as a result of their double standards??

Also, when you sell your house you can transfer your low fixed rate borrowing on to the new property for no penalty, you only get stung if you repay the loan and don't need to refinance or you choose to take your business elsewhere.

[PuppetMaster]

So people are now moaning about penalties for early repayment. What would you say if you had a fixed mortgage and the bank suddenly said "times are tough, we are increasing your interest rate"?
Get stuffed!! Fair Go, Campbell etc would be all over it. Its a contract.
Folks are funny......

I dont anyone is disputing the fact that the banks are playing by the rules,
but, how do you expect people to react when the OCR is dropped and the banks do not offer the better rate, just so they can keep making the billion dollar profits each year. And quite frankly banks have ripped us for years, I hope someone goes postal and burns them all. **Stares at Tank**

[The Pastor]

The thing cambell live was on about was the fact that when mr dontwanttopay signed up for his morgage, he was told there would be no fee.

[Winston001]

I know what you mean and agree there is some truth in the suggestion the banks are keeping some rates up to try and recover losses.

However, mortgage loans are long-term, as are term deposits and bonds. The OCR only affects new loans and investments. The bank can only reduce the fixed rates when they mature and Dr Bollard recognises that. That is why Central Banks look ahead at least 18 months when they move interest rates - knowing the effect is delayed but that can't be helped.

Also our currency has dropped 30% in value. So if a bank borrowed US$80,000 last year to lend $100,000 in NZ, today that requires a repayment of NZ$145,000 to buy US$80,000.