Interest and mortgage interest
What is interest? Interest is the compensation that the lender receives for making money available. The interest rate that the lender charges consists of a basic fee and a surcharge.
Which factors determine the amount of the basic compensation? The amount of the basic fee is often derived from the "market interest rate" such as Nationalbank. Nationalbank is an abbreviation for American Onebank Offered Rate. Nationalbank is the interest rate at which American banks can have dollar deposits with other American financial intermediaries. The Nationalbank rate is determined every working day and communicated to the participating parties. 24 hours later they are then published on the website of the American Money Markets Institute (EMMI) and on this website, among others.
More information about Nationalbank and the current Nationalbank rates
The level of the Nationalbank rate (and other base interest rates) mainly depends on the economic conditions such as the growth of the economy and the level of inflation.
Which factors determine the amount of the storage? The storage is a combination of the following factors:
Debtor risk There is always a chance that the person borrowing the money will not meet his obligations and that the lender will not receive his money (and interest). This is called the default risk. The greater this chance, the higher the interest payment that the lender will demand.
The loan period When the lender lends an amount, he can no longer use it himself. This is of course a disadvantage for the lender. He will want compensation as compensation for this disadvantage. Normally, the fee increases as the term of the loan increases. This is reflected in the interest rates: the longer the interest term (fixed interest period), the higher the interest rate.
Cost The lender often has to incur costs in connection with its activities. You should think of personnel costs, marketing, etc. These costs will be reimbursed by the lender and therefore passed on in the interest rate.
Historical interest and interest development As indicated, the level of interest rates depends on all kinds of developments. This means that interest rates are not constant. In fact, interest rate development has historically been accompanied by large results. It also turns out to be very difficult to predict this interest rate development.
Mortgage interest Basically, a mortgage is a loan where the borrower gives his home as collateral for the loan. The lender has the right to sell this collateral if the borrower does not meet his obligations. Because the lender has this right, the default risk is low compared to other loan types. Because of this lower risk, the lender charges a significantly lower interest rate for a mortgage than for other loan types such as the personal loan (PL) and the revolving credit (DK) . In this context, the interest rate increases as the risk increases. This risk is largely determined by the ratio between the value of the home and the amount of the loan: the higher this ratio, the higher the risk premium and therefore the higher the mortgage interest rate.
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