September 27, 2017
Yes. A borrower under an Index Mortgage can be “worse off” than it would have been under an equivalent non-indexed mortgage. This because there is no guarantee that, even over the long-term, the Link will outperform the standard mortgage rate.
But there is every reason to believe that it will. So, the question really ought to be:
- What is the chance that the borrower will be worse off?
- If that chance comes to pass, how much worse off might the borrower be?
- What potential upside does the borrower forfeit by not taking that chance?
Of course, nobody can tell the future. But we can “tell the past”. That is why IMCO undertook an extensive back-testing program, as to which click here. And whilst we can’t know the future, we can model it to make better informed decisions, which is why IMCO undertook an extensive simulation program, as to which click here.