After the housing market crashed back in 2008, the banks tried to stimulate the housing economy by offering households historically low interest rates. With the introduction of the 2.25% prime rate, inevitably households took up larger mortgages; many were drawn to the variable rate mortgages over the fixed rate mortgages as it allowed them to access low interest rates that are set by the Bank of Canada.
The major banks are partly responsible for the financial problem Canadian homeowners face today as their decision to raise prime by 0.25% three consecutive times will burden households who carry sizeable mortgages. The prime rate drastically rose from 2.25% to 3% within this year. The 3% prime rate may seem minimal; however, according to the RBC Mortgage Calculator, those who carry a considerable mortgage of $500,000 dollars will pay an astounding $211,316.47 of interest alone for a twenty-five year amortization period.
Based on the evidence, I feel that the banks are practicing unethical business when it lends out excess money to clients who don’t have the financial means to pay back once interest rates escalate. It appears that Ryanair is not the only company that misleads its customers by misrepresenting favorably conditions that are nonexistent.
2 replies on “Business Ethics:Are Banks Partly Responsible For The Financial Dilemma?”
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Good reference to class material(Ryanair).
I too, believe that the sub-prime mortgage scandal was unethical. Though as awful as the out come was, maybe the restructuring and the securing of the capital market was a long time coming…