I think its a good idea
Stupid question though- maybe someone can explain.
How can banks be losing money on Tracker mortgages? Do they not borrow from other banks/ECB at fixed rates when they are giving the customer a mortgage?
If not,why not? Is it a possibility? If they give someone a tracker of 2% over ECB rate how can they lose money on it? Its still 2% over the ECB rate whenever it moves up or down.Are there other costs to the bank?
Because banks don't borrow at the ECB rate. The ECB is a "risk free" rate but when banks lend and borrow to each other, they add a risk premium which is what Euribor is. It's an indication of the cost of funding for the banks. In the good years, this wasn't a problem as Euribor tracked the ECB but when the financial crisis struck, banks were having to pay more to borrow money but were stuck receiving the ECB rate which was falling on trackers.
There are other complicating factors such as how banks manage their interest rate risk on their loan books but that's the simple answer.
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