Fixed or floating rate? branded financial services

Fixed or floating rate? branded financial services

January 30, 2021 Off By Montero Theo

The crucial doubt in choosing a mortgage is always the choice of the rate: fixed or variable?

Let’s start from the basics, now known to practically everyone: fixed rate means that the installment will never vary until the end of the loan, while variable rate means that the installment is tied to a market rate, which can vary.

We do not go into the various details of the offers for now, but we try to provide ideas to be able to make a choice with awareness.

The variable rate mortgage is usually indexed to the Euribor rate plus a spread.

The fixed rate mortgage is indexed (and blocked) at the Eurirs rate plus a spread.

We will return later, in more detail, in the explanation of the terms and in the deeper technicalities, for now let’s just try to understand the meaning that these rates have for the bank.

If the bank, theoretically, did not profit from the mortgage, it would have to grant mortgages without a spread (i.e. lend money at the pure market rate, fixed or variable). Clearly this is not the case: the bank protects itself by adding an additional amount (called the spread) to the base rate, which allows it to obtain more in terms of installments.

Practical example: a customer gets into debt at a fixed rate and then blocks the installment for 30 years at the rate of 5%. Suppose that, in the future, due to unpredictable global phenomena, current variable rates are 10%. For the bank it is clearly a damage to have taken out mortgages at only 5%. How does the bank protect itself from such an eventuality? Clearly increases the spread for the fixed rate.

This is the reason why, when taking out a mortgage, the fixed rate (base plus spread) is always higher than the variable (base plus spread).

We must understand that the spread is a sort of commission that we pay monthly to the bank, therefore, the lower the spread, the cheaper the mortgage is for us.

Is it therefore worthwhile to borrow at a variable rate? It depends on the duration of the loan!

If the loan is very long (20 years or more), the variable is almost always the best solution, because there will be periods, like this one (early 2012) in which the installments will be very low due to the low Euribor and there will be periods in which the installments will be much higher.

If we consider the total duration, however, the average installments of a variable should be lower than the installments of a fixed rate mortgage (since the spread applied to the variable rate mortgage is lower than the spread applied to the fixed rate).

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For short periods, however, it is necessary to make assessments (and no one has a crystal ball): in the case of low rates perhaps the variable is convenient, while in the case of forecasts for an increase in rates, perhaps the fixed-rate mortgage is convenient.

It is true that the fixed rate mortgage has the strong psychological advantage of knowing the installment, but, as we have explained in this article, it is always necessary to keep in mind that, with a high spread imposed by the banks, the fixed rate cannot always be competitive.

especially over long durations. Evaluate well and choose based on your ideas: if, in any case, you know you can support a much higher rate, the variable rate mortgage could be what you are looking for.

PA credit certification: the CONSIP platform branded financial services

Italian companies are in a situation in which they have large receivables from public administrations, the latter often have a very long time to pay off the payment.

If this custom could have been overshadowed some time ago, today it creates a series of chain events that often leads companies to fail.

It is no longer acceptable to have to see companies fail because they are not paid within the time limits set by the public administration, which then does not give discounts when it has to collect its credits.

In this scenario, the Ministry of Economy (Department of the Treasury) and that of Economic Development are developing a plan where at least one of the important points is the management by Consip of a platform to certify the credits of businesses to the Public Administration. The goal is to bring a simplification in the management of credits and debts to local debtors, suppliers and banks that will discount the credits.

This method of certification should clarify and make transparent the process of certification and assignment of credits, to try to put a stop to the unreal situations of bankruptcy of companies with credits, but which close their doors precisely because liquidity does not enter their coffers, but they are asked to go out for various taxes and duties also related to those credits.

Who is Consip?

Consip is a joint-stock company of the Ministry of Economy and Finance (MEF), which is the sole shareholder and operates at the exclusive service of public administrations.

Consip works in two main directions:

– Provides consultancy and planning, organizational and technological assistance services for innovation of the Ministry of Economy and Finance (MEF) and the Court of Auditors (Cdc);

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– Manages the program for the rationalization of purchases in the Public Administration

The credit certification process

Thanks to this platform, suppliers will communicate the invoices that the Public Administration must pay and the latter is obliged to pay them within 60 days or contest them.

Another important aspect is that the supplier will have a receipt that can be used as a guarantee for the credit in the bank.

 

It should also be emphasized that the intervention of a notary will not be required for the assignment of credit to the bank, the electronic certification and a communication to the debtor of the fact that the creditor has changed will be sufficient.

Personal Banker

The personal banker is a professional, specialized in financial, pension and insurance advice.

Banks offer this consultant to their clients with substantial assets to assist them in the correct management of their savings.

He is a figure of the “off-line” bank that aims to remove the big saver from internet banking and welcome and guide him among the solutions offered by the “physical” bank, also giving him a qualified human presence that has the aim of increase earnings.

The personal banker offers private banking services, so it is often referred to as a private banker.

Be careful not to confuse this figure with that of the financial promoter whose duties can be assimilated more to those of a pure seller of financial products for any type of customer.

Typically the private banker provides customer assistance in more complex disciplines such as succession, art, financial planning.

Policies and mortgages branded financial services

The policies combined with mortgages have always been offered by the bank at the same time as the loan is taken out.

There are mandatory policies (such as the fire insurance policy) and optional policies (such as the life policy, or the policy that protects against various risks, such as for example the loss of work).

We do not go into the details of the individual policies for now, but we focus on a different matter: according to the Liberalization Decree (which became law on March 24), it is now mandatory that credit institutions provide the customer at least 2 different policy estimates.

But let’s try to clarify the subject, with a critical, and perhaps even biased spirit, understanding what the advantages were for the banks, in presenting a single policy, and how now we are trying to get around the obstacle.

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When there was no obligation to submit at least 2 policy estimates, the banking institutions tried to place the policies for which they were paid back hefty placement commissions.

Let’s try to simplify: the insurance company Pippo SPA specializes in placing life insurance policies, and the PlutoBank bank is very efficient in selling mortgages.

Pippo SPA, who wants to increase sales of policies, proposes a deal to PlutoBank: to offer their life policies to those who take out a mortgage. In return, PlutoBank will receive a percentage of the proceeds in the form of commission expenses (which clearly indirectly affect the customer who takes out the mortgage).

In this way, many customers have taken out policies offered by the bank and, to avoid wasting more time looking for other policies, they have signed the first policy offered by the bank.

But now it’s different: in order to try to stem this conflict of interest, the bank is obliged to propose at least 2 policy quotes. Problem solved? We are perhaps bad, but we believe that something like this will happen: do you want to see that, coincidentally, the bank will continue to propose the policy of its liking and, as a second option, will propose a policy with clearly higher costs?

The Decree, in fact, says that 2 proposals must be presented, but it makes no mention of the fact that the second proposal must be competitive with respect to the first. In this way, between the two proposals, 90% of people will obviously continue to choose the convenient one, which, perhaps, will be the one that the bank would have placed anyway.

There is, however, a way out, for those who want and time to inquire: from the moment the loan is initiated, the customer still has 10 working days to choose a policy that he deems advantageous. The willing therefore have the opportunity to find the convenient offer.

If you want to let us know your experience, or just want to tell us if and how you have chosen other policies, let us know. Shared experience is the most precious asset.

 

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