On banks paying interest to people with mortgages or how NOT to run a banking operation: The answer

So it finally happened. This morning I received the letter from Birmingham Midshires answering the million dollar question: What happens when the Bank of England takes the base interest rate down to 0.5% or below and you are paying them 0.5% or higher below BoE base rate?

Well, since the bank’s decision back in March 5, it has taken them over a month to communicate with customers, but if you had hopes of getting paid for having a mortgage (absurd and ridicule thought, but these are absurd and ridicule times), drop it, in an interest only mortgage BM informs me that:

We’re writing to you following the Bank of England’s decision on 5 March 2009 to decrease the Base Rate. We’ll be reducing our interest rates on 1 April 2009, and so you’ll receive the benefit of the reduced rate from this date. We want to keep you informed of how these changes will affect you as outlined below.

The interest rate on your account is 0.0000% and your monthly repayment will change to £0.00 and will be collected on X June 2009.

As your account operates on an interest only basis, no monthly repayment will be due from X June 2009.

This decrease in the Bank Base Rate means that the interest rate on your account has fallen to zero per cent. This is because your mortgage product currently has a discount that is greater than the Bank Base Rate. Your interest rate will remain zero per cent until your product changes in line with the terms&conditions, or the Bank Base Rate increases to a value which is higher than your current discount. […]

Which means that they made on of the most stupid decisions a banker could make times the number of people who got a similar mortgage to mine.

Let’s be fair, getting an interest-only mortgage was as dumb an idea for the bank as it was for me. With 20/20 hindsight, what looks like a quick fix (lower monthly payments and more customers for the bank) is nothing but a recipe for a mess.

Even though my mortgage payments have dropped significantly or completely, I learnt my lesson, and I am no fool, banks that make no money, go burst. Societies with no banks, don’t prosper.

.calvin

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