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Post by erniec on Aug 29, 2019 15:42:25 GMT
My RateSetter activity is only in the 1 Year product now.
Today, Noticing that the lending rate was at 5.4%, I was able to sell my existing holding at 4.5% and quickly re-lend at the 5.4% rate, accepting the 0.3% cost of doing so.
I have done this a few times now and don’t understand how this is possible. Who is taking on my previous 4.5% lending when they could have taken the 5.4% that I now have?
Any insight would be appreciated.
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Post by Deleted on Aug 29, 2019 15:54:31 GMT
I believe RateSetter takes on that cost (and the gains when the opposite happens) ie it covers the cost of the extra return from rates now being higher.
After 4 months you will have received an overall return of 1.5% (one-third of 5.4 less the 0.3 fee you paid) and you would have received the same with the loan you sold (one-third of 4.5) so if the loan lasts longer than 4 months you'll have made a genuine gain.
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Post by erniec on Aug 29, 2019 16:16:31 GMT
Thanks for your thoughts.
I looked at it slightly differently.
Having sold the previously loan within the first month, taking into account the cost of selling, I turned what was a 4.5% return over 12 months to a 5% return over 13 months.
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Stonk
Stonking
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Post by Stonk on Aug 29, 2019 16:17:32 GMT
RS take the loss (or, more likely: reduced profit), when this happens.
The risk of your doing this kind of swap is that the new 5.4% loan will repay sooner than the break-even point of the strategy -- something over which you have zero control. Your new loan might repay next week, and then you'll be down by the amount of the fee you paid.
Suppose you sell a £1,000 loan that was paying 4.5% (which is about what you normally get in 1 Year if you don't want to wait), pay the selling fee of £3, and buy back into a £997 loan at a spike of 5.4%. You now receive £0.74 per month more interest than before, so if the new loan lasts more than about 4 months, you start to profit from the strategy, and your maximum possible profit is £5.83 after 1 year. But if it suddenly repays next week then you are almost £3 down. It's definitely not a guaranteed winner: balance the £5.83 potential gain against the £3 potential loss.
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Post by erniec on Aug 29, 2019 16:22:34 GMT
Thanks, I understand and accept the possibility of my new loan repaying earlier than the previous one.
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Stonk
Stonking
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Post by Stonk on Aug 29, 2019 16:33:10 GMT
Thanks for your thoughts. I looked at it slightly differently. Having sold the previously loan within the first month, taking into account the cost of selling, I turned what was a 4.5% return over 12 months to a 5% return over 13 months.
Yes, that's what you've done. I make it about 5.05% for 13 months, assuming the new loan runs for a full year.
Another risk -- over which you also have no control -- is that the new loan is a second-hand loan with significantly less than a year left to run. I'd be annoyed if I attempted this swap and ended up with a 5.4% loan which turned out to have only 2 months left on it, leaving me with a guaranteed loss! I have no idea what the ratio is for newly-minted versus second-hand loans on the 1 Year market.
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Post by erniec on Aug 29, 2019 17:16:39 GMT
First thing I checked. I effected this on three out of four of my and MrsC accounts, ISA and non-ISA. All are full 1 Year loans, ending 1 September 2020.
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Post by erniec on Aug 30, 2019 12:54:29 GMT
Is the 1 Year the place to be just now?
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aju
Member of DD Central
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Post by aju on Aug 30, 2019 14:49:01 GMT
didn't stay there very long though
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mary
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Post by mary on Aug 30, 2019 14:51:42 GMT
Is the 1 Year the place to be just now? My 5.6% offer did not get matched, and there’s no Borrowers left.
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Post by erniec on Aug 30, 2019 16:46:34 GMT
You have to act very quickly and move your 5.6% to 5.5%, rather than waiting and hoping it’ll match your 5.6%.
There are lenders, like me, who get the debit card out and grab large amounts quickly.
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Post by propman on Aug 30, 2019 17:55:16 GMT
You have to act very quickly and move your 5.6% to 5.5%, rather than waiting and hoping it’ll match your 5.6%. There are lenders, like me, who get the debit card out and grab large amounts quickly. This is another reason that it is risky to pay to release funds from another loan...
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Post by erniec on Aug 30, 2019 21:21:43 GMT
You have to act very quickly and move your 5.6% to 5.5%, rather than waiting and hoping it’ll match your 5.6%. There are lenders, like me, who get the debit card out and grab large amounts quickly. This is another reason that it is risky to pay to release funds from another loan... Agree. On this occasion, I did have an anxious wait but was fortunate that the funds came through in time.
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benaj
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Post by benaj on Sept 4, 2019 10:21:20 GMT
56 orders queuing @ 3.0% on 1 year, over £100k. Seriously?
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