The endangering of fixed-rate mortgage loans

Published on by Delphine from OltottMesz

According to Les Echos, the representatives of the banks of several countries including the United States would have liked to alert the Basel Committee concerning the threat hanging over fixed-rate mortgage loans . Remember that the fixed rate mortgage is the most popular in United States because it avoids any surprises for the consumer and seems to be the best solution when rates are at the lowest.

So far all is going for the best, but the banks seem worried about the future approach of the "rate risk" which could be imposed on them. Indeed, many things are likely to change because the Committee would like banks to manage changes in interest rates differently.

Today, it is the banks that take charge of rate variations, however this practice is singled out by the Basel Committee which does not consider it sufficiently secure. Currently managed "bank by bank", the Committee would now like a "common rule" which would be followed by each of the organizations with more substantial reservations to be made in order to better compensate for variations in rates.

This practice could therefore lead to a rise in rates, which would allow the banks to obtain a sufficient margin to carry the requested reserves. Another possibility is a gradual return of the variable rate, which until then corresponds to approximately 1 in 7 mortgage loans. The variable rate does not seem interesting for the customer only when the rates are at their highest, currently it is just the opposite.

Finally, the customer would be the first victim of this reform, however the banks are also worried about the consequences of this change and the negative repercussions they would cause on the mortgage market in United States.

Source: Les Echos
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