Could Monetary Policy be affecting the Mortgage Default Rate?

With reference to How does monetary policy pass-through affect mortgage default? Evidence from the Irish mortgage market by David Byrne, Robert Kelly, and Conor O’Toole. 04/RT/2017

With the loosening structure of the monetary policy by central banks after the global financial crisis, which allowed the mortgage interest rates to be lower which could have led to a lower default rate on mortgages. This post will focus on two different types of mortgages the Standard Variable Rate mortgage (most commonly known as SVR) and the Tracker mortgage.

A SVR is a mortgage where the lender has the ability to decide when and if the interest rate on the loan will change while a Tracker mortgage is where the interest rate is set to a certain percentage above the European Central Bank interest rate. As the number of Tracker mortgages were increasing while the European Central Bank interest rate was decreasing, the banks started to lose money on them as the interest rate on the mortgage payments were not high enough to cover the cost of the loan. …

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Defining ‘Strategic Default’

One of the things the whole strategic default issue lacks is any set definition. There are words that get used with motives embedded in them, such abuse of language only exists when there is not a set meaning to the word. To call a default strategic is two very different things depending on who is talking about it.

To a bankers mind it might mean any loan unpaid where the person has a penny to spare, to a borrower it might only be where a person withholds all money from the lender and goes and lives the life of Reilly.

I’m asking for your help on this one, please use comments to add your thoughts and I’ll re-edit the post appropriately.

To start with I’ll attempt to define a strategic default on multi-investment properties, there are other types so feel free to give the example or way of defining it as you see it.

1. Multi-investment property investors: Where the person is collecting rent and paying interest only, then the bank look for capital and interest and the person goes …

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Why paying off your credit card rather than your mortgage is stupid

It’s a common debate in debt that people prioritise in certain ways based on certain behaviours. A common one being that it is rational to pay off a credit card because that is what buys the shopping or puts fuel in the car.

The belief being that a credit card provides liquidity when needed, but in paying off this debtor first it brushes over two key facts.

1: If you told the credit card holder to go and jump for their money you’d be instantly better off by whatever you owed them, we regularly see settlements done for 10c on the Euro. This saving (assuming it equates to the missed mortgage payment – which is a leap of faith at best) could be used to fund the following month or two for fuel/groceries, and that isn’t to say you couldn’t repeat this process with a mortgage too as a source of financing if you had to, but doing it first is a mistake.

The first rule in personal finance is about prioritisation and while we regularly tell people to burn …

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