Quote:
Originally Posted by Deegee
The thing is that when you agree to a fixed rate, you are assuming some risk that interest rates could down, and the financial institution is assuming some risk that interest rates could rise.
If you locked in a term deposit or a GIC a year ago at 5.05%, how would you feel is your financial institution phoned you and told you that you will have to only gain 2.00% now? You'd probably be pretty pissed off.
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Ah but like any good gambling house the bank makes sure the odds are in their favour by scaling the rates differently for different terms so that longer terms that put the bank at more risk of losing out on increases have higher rates and the penalty completely offsets the loss of a borrower who jumps ship halfway through the term if rates drop. So the bank doesn't take much risk at all in that sense. The borrower takes all the risk on that side of the equation.