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Old 21.04.2015, 10:48
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Bank not passing negative 3M Libor to our mortgage

We have a mortgage contract with a bank, with an interest rate set a few years back of 3M CHF LIBOR + 0.85%.

For the past few months the 3M CHF LIBOR has been about -0.85% so we should be paying 0% interest.

In February the bank set us a rate renewal notice that the interest rate applicable to our mortgage would be 0 + 0.85% = 0.85%.

I asked them via email why they were using 0 as the 3M LIBOR rate as that was not correct, shouldn't it be -0.85%. This obviously worried them as last week I got a letter by post signed by 2 Directors, basically saying that they weren't going to pass the negative LIBOR to me and encouraging me to take a fixed term mortgage!

Does anyone else have any experience of this? Can they do this - is there a central body I should take this up with to get a formal opinion (FINMA?)
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Old 21.04.2015, 10:51
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Re: Bank not passing negative 3M Libor to our mortgage

Imagine you were a bank: would you sell a mortgage with a negative interest?
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Old 21.04.2015, 10:53
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Re: Bank not passing negative 3M Libor to our mortgage

Check the contract; you'll probably find there's small-print saying something along the lines of negative LIBOR being counted as 0%.

I have a mortgage in the UK at the BoE rate + 0.5% and they tried to get out of it when it went down to 0.5%, but there's no relevant small print in my contract so I've been paying 1% (which is low for the UK) for a few years now.
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Old 21.04.2015, 10:55
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Re: Bank not passing negative 3M Libor to our mortgage

they have operational costs and risks associated with the loan. Are you expecting them to start paying you to have a mortgage with them.
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Old 21.04.2015, 11:01
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Re: Bank not passing negative 3M Libor to our mortgage

You need to check the contract - recent mortgages have had a clause preventing the effective base rate used going below zero.

SGKB apparently tried to unilaterally change the conditions (see Google translated http://insideparadeplatz.ch/2015/02/09/st-galler-kantonalbank-trickst-mit-libor-plus/ but take with a pinch of salt, Inside Paradeplatz is notoriously biased).

If you don't have this clause, first thing would be to challenge it in writing to the bank, claiming back any mischarged interest and demanding correct interest calculations in future.

FINMA etc won't be interested (no pun intended) until you've gone through the bank complaint process.
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Old 21.04.2015, 11:03
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Re: Bank not passing negative 3M Libor to our mortgage

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Imagine you were a bank: would you sell a mortgage with a negative interest?
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they have operational costs and risks associated with the loan. Are you expecting them to start paying you to have a mortgage with them.
That's the bank's problem. Currency exchange, interest rates, share prices ... it's just gambling. If a bank sets a rate of LIBOR+0.5% and doesn't have a clause to ignore negative LIBOR rates, then they will have to honour it.

However, if there's a cancellation clause expect them to honour the rate and immediately cancel the mortgage, offering you a new (and in their favour) deal.
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Old 21.04.2015, 11:04
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Re: Bank not passing negative 3M Libor to our mortgage

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they have operational costs and risks associated with the loan. Are you expecting them to start paying you to have a mortgage with them.
I think he's expecting them to honour their contract. Since they can in theory borrow the money at the (negative) base rate, their profit spread should be independent of it.

If they've engineered the product incorrectly then as a bank they should take responsibility, not dump the problem on the client or try to wheedle out of it.
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Old 21.04.2015, 11:49
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Re: Bank not passing negative 3M Libor to our mortgage

The below paragraph in a Tages-Anzeiger article states how profitable Libor-based mortgages can be. It also says that nearly all banks - excepting the St Gallen Cantonal Bank - have stipulated that the lowest Libor rate is 0%.

According to this article, the banks then are able to borrow at -0.75% and then charges the customer 0.8%, giving the bank a margin of about 1.5%, which is quite profitable.

Libor-Hypotheken besonders lukrativ
Doch fast alle Banken – die Ausnahme ist beispielsweise die St. Galler Kantonalbank – haben schon vor Jahren, als sich gegen null sinkende Zinsen als Möglichkeit abzeichneten, eine Untergrenze bei 0 Prozent verfügt. Die Folge ist, dass die Bank beim heutigen Zinsniveau eine doppelte Marge einstreicht. Sie refinanziert sich bei minus 0,75 Prozent und verrechnet dem Kunden 0,8 Prozent Positivzins, entsprechend der Marge, die sie von der Untergrenze bei 0 Prozent Zins berechnet. Zusammen ergibt das rund 1,5 Prozent. So viel verdient die Bank derzeit an Libor-Plus-Hypos, das Zweifache von Festhypotheken.


http://www.tagesanzeiger.ch/wirtscha...story/24498906
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Old 21.04.2015, 12:09
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Re: Bank not passing negative 3M Libor to our mortgage

Check the contract. Most will only talk about paying interest, not receiving it, so I wouldn't be too hopeful of receiving a payment.
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Old 21.04.2015, 12:12
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Re: Bank not passing negative 3M Libor to our mortgage

Actually they don't from any I've seen - they give the rate for the loan, and then may or may not say you have to pay that interest regularly.

So you may not be able to get them to pay it to you, but they should certainly deduct it off the balance.
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Old 21.04.2015, 12:43
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Re: Bank not passing negative 3M Libor to our mortgage

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Actually they don't from any I've seen - they give the rate for the loan, and then may or may not say you have to pay that interest regularly.

So you may not be able to get them to pay it to you, but they should certainly deduct it off the balance.
wow. if your mortgage contract doesn't say you have to pay interest, then you could be saving quite a lot!
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Old 21.04.2015, 12:46
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Re: Bank not passing negative 3M Libor to our mortgage

I'm not saying that you don't pay an interest fee - I'm saying that the rate and actually paying more money to the bank aren't the same points.

You may or may not have to actually pay money to the bank, for example you can also use a Pillar 3 account to cover the interest at a later date, in which case it is added to the outstanding balance.
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Old 21.04.2015, 12:56
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Re: Bank not passing negative 3M Libor to our mortgage

The Swiss perpetual mortgage might no longer make (as much) sense in this era of negative interest rates. If one doesn't have good alternative investment options, and depending on one's tax situation, perhaps it's time to consider paying off tranches as they come due.

Even bringing the mortgage down to less than 66% eliminates the second Hypothek, which might be a considerable savings.

YMMV. As always.
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Old 21.04.2015, 13:48
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Re: Bank not passing negative 3M Libor to our mortgage

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You need to check the contract - recent mortgages have had a clause preventing the effective base rate used going below zero.

SGKB apparently tried to unilaterally change the conditions (see Google translated http://insideparadeplatz.ch/2015/02/09/st-galler-kantonalbank-trickst-mit-libor-plus/ but take with a pinch of salt, Inside Paradeplatz is notoriously biased).

If you don't have this clause, first thing would be to challenge it in writing to the bank, claiming back any mischarged interest and demanding correct interest calculations in future.

FINMA etc won't be interested (no pun intended) until you've gone through the bank complaint process.
Thank you to everyone for the replies.

Back in early March I looked at my documentation from the bank but couldn't find anything about -ve LIBOR. The only condition that I could see was that the interest rate would be reset periodically as 3M LIBOR + 0.85%.

On 6 March 2015 I sent my contact at the bank (Credit Agricole Financements (Suisse)) an email pointing out that the 3M CHF LIBOR rate was not 0% but -0.822% and asked them if it was an error. Or otherwise please could the bank clarify where in the contract that we signed was it covered that in the event the 3M LIBOR rate became negative then for the purposes of calculating our mortgage interest rate they would not give me the benefit of the negative rate but block it at 0%.

In their response on 13 April they replied that they would continue to apply a rate of 0.85%. They didn't make any reference to a contract. They just added perspective (that I was benefiting from an exceptionally low interest rate, that the decision of the Swiss National Bank to introduce negative rates only concerned short term operations on the money market and didn't impact mortgage rates (not sure that is at all true seeing as I have a 3 month LIBOR mortgage which by definition is calculated based on short term interest rates), and invited me to take advantage of the market conditions and contact them about taking out a fixed rate). It seems like waffle and since I got the reply in writing from 2 Directors I wonder if I have made them realise that they have an issue with what they are doing to me and other customers as well.

Anyway my post was just in case anyone else had been in the same situation. I've dropped a message to FINMA today to ask if there is someone who can advise on this. I will revert back once I get a reply.

Yes of course I accept the bank has costs but with the decision of the Swiss National Bank they should be able to raise funds at a much lower rate than before - either in the market or by charging depositors to look after their money like some other banks are doing. But in any case as someone else pointed out it's not my problem - we signed up to a LIBOR mortgage, which on my side comes with the risk that if LIBOR goes high I will have to pay a higher interest rate, but when it goes low or negative I should surely also get the benefit (and not the bank sits on a bigger profit margin.)
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Old 21.04.2015, 13:55
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Re: Bank not passing negative 3M Libor to our mortgage

I think a similar thing happened in the UK not long ago:

http://www.telegraph.co.uk/finance/p...-by-banks.html

I haven't seen anything conclusive on what happened, but doubt that there was a payout of interest as the contract wording to allow for this would be very unlikely to be in place.

One thing is to be aware of your negotiating position. I'd expect that your bank has the ability to not renew the mortgage after the 3 month period is up and leave you scrabbling to re-mortgage. You may win the battle, but...

If you were to push, and I were the bank, you may get a letter like:

"thank you for your letter, please note that per the mortgage agreement, that you are required to pay interest to us, but where interest is negative, this does not result in a payment to you for [reasons]. we hope you understand [yadda yadda].

should you wish to pursue this, we regret to inform you that the costs of protecting our position would be prohibitive and we would be forced to redeem your mortgage as of 30 June 2015 as we have the right to do under [clause xyz]. however, we would be happy to offer you alternative mortgage products. note that these carry a very competitive arrangement fee of [X'XXX CHFs].

we thank your for your custom and look forward to your continued business".
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Old 21.04.2015, 13:59
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Re: Bank not passing negative 3M Libor to our mortgage

I just got reply from FINMA that they don't cover this area. I need to contact:

www.bankingombudsman.ch

I will contact them to see if other people have been in similar situations and what the outcome is. They are only available 0830-1130 in the morning.

Indeed I need to be careful the bank can't cancel the contract - don't look the gift horse in the mouth and all that
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Old 21.04.2015, 14:03
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Re: Bank not passing negative 3M Libor to our mortgage

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I just got reply from FINMA that they don't cover this area. I need to contact:

www.bankingombudsman.ch

I will contact them to see if other people have been in similar situations and what the outcome is. They are only available 0830-1130 in the morning.

Indeed I need to be careful the bank can't cancel the contract - don't look the gift horse in the mouth and all that
depends on the bank. certainly the LIBOR mortgage I had could be redeemed by the bank or me at any 3 month period.
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Old 21.04.2015, 14:05
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Re: Bank not passing negative 3M Libor to our mortgage

Just to chip in my tuppence worth, I also have a floating LIBOR + 0.6% mortgage with CS.

When rates went -ve, spoke to my advisor and he pointed out in the contract where it said -ve rates would be treated as 0% with the additional 0.6% charge on top. Fair enough, can't really complain!
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Old 21.04.2015, 14:18
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Re: Bank not passing negative 3M Libor to our mortgage

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depends on the bank. certainly the LIBOR mortgage I had could be redeemed by the bank or me at any 3 month period.
I just checked my documentation and I have a 25 year contract with 21 years left to go so I don't think they can cancel unilaterally
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Old 21.04.2015, 14:20
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Re: Bank not passing negative 3M Libor to our mortgage

I think you'll find a bank can call in its loan at just about any time for just about any reason
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