This is a post card I’ve recently received (ie: post banking meltdown) from a certain financial company a couple of times:
Now, if you follow the URL given on the post card, what do you find? Not much. In fact it looks in fact like a “No catches. No surprises.” deal.
But how can they afford to give such astoundingly good interest rates?
Because, unless you’re paying attention closely, at year 6 it switches to a variable interest rate mortgage. Moreover, even if you caught it becomes variable, that “projected interest rate” of 3.375% is dangerously misleading – yes, they can guestimate what it could be based on current trends, but they can’t possibly know if it really will be, nor even so that it’s going to stay anywhere near that rate for year 6 through 30. In fact one has to guess they’re betting that it doesn’t, otherwise this wouldn’t be a profitable venture for them.
Unfortunately this is exactly the sort of lending that got us into this mess in the first place. Teaser rates that sucker people into taking loans they ultimately can’t afford as the rates change.
Yes, it’s probably better than many of the worst offenses of the last 10 years, but it shows that not much has changed really. And that should leave us all afraid, because it’s just these sorts of poison pills that increase the risk of so called “assets” held by banks leading to the next possible meltdown.
One would think that so soon after the last disaster that banks would be wary of jumping so quickly into the same sorts of games. However this shows how little was learned and how much of the hubris still exists.
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