should erps be banned?

dunstonh

where does the money come from that is lent to us? that's easy. debt.

Correct. The bank has to pay those that lend it the money (savers or corporate investors). I'm going to simplify the process here but lets say they agree a 5 year tranche paying the investors 4% p.a. This allows the bank to lend it on fixed rate at say 4.5%.

Now, if you repay your mortgage, the lender ceases to get that 4.5%. Yet it still has to pay the investors 4% until maturity. Who is going to pay that 4% if you dont?

can you give me a link to an actual loan / mortgage that is only profitable because of the erps and not a vague generalization about types of product?

Look at any fixed rate, discount, cashback and discounted tracker deal and there is a product that would only be profitable if an ERC existed.

Can you imagine a cashback mortgage giving 6% cashback but having no ERC?

TroJon

Let me try and give this a tackle in the most basic of basics-

If a person lends you money- a sum of say £10,000, and you agree to pay him back £11,000 in 5 years, but instead in a year you find someone who will offer you £10,000 but you only need to pay back £10,500- if there are no ERCs there, what is stopping you from moving? - nothing. Ergo the person who lend you the money originally has lost out on a year of borrowing £10,000 himself, to lend to you, when that money could have been invested/earnt interest in that year. Essentially, the original person would have LOST money on you.

ninky_2

dunstonh wrote: »

Correct. The bank has to pay those that lend it the money (savers or corporate investors). I'm going to simplify the process here but lets say they agree a 5 year tranche paying the investors 4% p.a. This allows the bank to lend it on fixed rate at say 4.5%.

Now, if you repay your mortgage, the lender ceases to get that 4.5%. Yet it still has to pay the investors 4% until maturity. Who is going to pay that 4% if you dont?



Look at any fixed rate, discount, cashback and discounted tracker deal and there is a product that would only be profitable if an ERC existed.

Can you imagine a cashback mortgage giving 6% cashback but having no ERC?

i'm only asking for a specific example of one and you have failed to give it.

with regards to whether i'd be happy to earn less on savings; absolutely. since with greater restrictions on lending savings would actually be worth more (money is after all only worth what it can buy). personally i find the fractional reserve banking system ludicrous and suspect that it is unsustainable (we've just borrowed it a little more time). interest on lending is ultimately immoral. it doesn't "create wealth" in the true sense, merely distributes it - very unevenly as it turns out.

for me, mse is all about getting out of debt and avoiding unfair charges. erps attempt to stop that process.

getmore4less

ninky wrote: »

i did choose a product accordingly and am on flexible mortgage with no penalty for overpayments that tracks the baserate +0.49. yet to think this issue doesn't affect me is wrong. no man is an island and all that.

my attitude to mortgages is they shouldn't exist at all but i realise that's far too radical for the majority on this board. combine an absence of lending with other economic policies and we could all have a much better quality of life. but for starters i'd be happy with the removal of early redemption. btw where are these really great loans that they have lead to? my mortgage doesn't have them and the rate seems better than many others. are you suggesting the lenders gave it to me as a charitable donation? jolly kind.

Money was much more readily available then, base rates were higher and lenders were accepting tighter margins hence the good deals.

A lot of people miised out on these because brokers are fixated on short term dead to keep the comissions coming.

There were products then with even better short term rates(tracker follow on) but these had ERC to reflect the risk ofthe discounts.

The choice is still there customers can chose the product to best fit their needs, lower rates but commitied to a fixed term with charges to get out ofthe contract or fully flexable product.

Even the so called fully flexable products like Barclays offsets had charges in the first 2 years if you wanted to change.

dunstonh

i'm only asking for a specific example of one and you have failed to give it.

I gave you thousands instead.

Clearly you have decided not to be objective and understand the financing instead choosing to be ignorant about the subject to suit your point your view.

interest on lending is ultimately immoral. it doesn't "create wealth" in the true sense, merely distributes it - very unevenly as it turns out.

And without lending money, the property owners would become richer and richer as the ordinary person would be forced to rent from them.

for me, mse is all about getting out of debt and avoiding unfair charges. erps attempt to stop that process.

ERCs allow you to buy a deal that saves you money. Very consistent with MSE objectives.

Next you will be saying that its unfair that you have to buy food and it should be free.

ninky_2

TroJon wrote: »

Let me try and give this a tackle in the most basic of basics-

If a person lends you money- a sum of say £10,000, and you agree to pay him back £11,000 in 5 years, but instead in a year you find someone who will offer you £10,000 but you only need to pay back £10,500- if there are no ERCs there, what is stopping you from moving? - nothing. Ergo the person who lend you the money originally has lost out on a year of borrowing £10,000 himself, to lend to you, when that money could have been invested/earnt interest in that year. Essentially, the original person would have LOST money on you.

how have they lost out?! they could a) simply repay their debt with the repaid debt you would have given them b) offer to match the rate of the new lender (they still make money) c) not lend out money they don't actually have in the first place (slightly radical concept for most i realise).

luckyfool

ninky wrote: »

how have they lost out?! they could a) simply repay their debt with the repaid debt you would have given them b) offer to match the rate of the new lender (they still make money) c) not lend out money they don't actually have in the first place (slightly radical concept for most i realise).

This is pointless, you are either not arguing in good faith, or do not have a grasp on even the most basic of concepts.

The money banks lend out is money invested with them by customers. Money lent out by banks on fixed rates is generally fixed by them as well to reduce risk. e.g. Either on swap rate funds or by offering fixed rate savings accounts or bonds. The bank does not have the option of paying back the fixed rate savings bonds as they made a commitment when offering say a 3 yr fixed bond paying 4%. . . that, and bear with me for this difficult concept, they would actually pay that 4% interest to the customer for all 3 years. Much in the same way if you take out a 3yr fixed rate mortgage with the bank at 5% you are making a commitment to either stay with them for the full 3 yrs, or pay a penalty of say 2 or 3% to end it early (to cover the banks costs in doing so). If you don't want to be tied in then there are mortgage products out there without tie ins. If you only want to be tied in for 2 or 3 yrs then take a product with no more than that penalty period.

Please explain if there is something about my example which is still giving you difficulty.

ninky_2

dunstonh wrote: »

I gave you thousands instead.

FLANNEL

Clearly you have decided not to be objective and understand the financing instead choosing to be ignorant about the subject to suit your point your view.

This is not a rational point it is your interpretation of my personality.

And without lending money, the property owners would become richer and richer as the ordinary person would be forced to rent from them.

Or the ordinary person would actually be able to buy property outright and not rent it off the bank for the majority of their working life. Lending inflates property prices.


ERCs allow you to buy a deal that saves you money. Very consistent with MSE objectives.

They don't save you money. They are designed to tie you into a deal when a better one can be found elsewhere. Interesting the way"penalties" have been rebranded as "charges".

Next you will be saying that its unfair that you have to buy food and it should be free.

Next you will be saying people should take out loans to pay for food.

luckyfool

Lets try not to feed the troll any more.

ninky_2

luckyfool wrote: »

This is pointless, you are either not arguing in good faith, or do not have a grasp on even the most basic of concepts.

The money banks lend out is money invested with them by customers. .

wrong. ever heard of fractional reserve banking? banks do not simply lend out "money invested with them by customers". duh!