The home loan may seem relatively cheap at the moment, but appearances are deceptive. Despite the fact that the banks offer low interest rates, on the other hand they earn more than enough, since there is a considerable margin. The interest that one has to pay is currently extremely low, so it is no problem to adjust the interest on home loans downwards. Keep in mind, however, that people are anticipating rising interest rates and that interest rates will therefore never fully fall in line with current market rates.
3.8 – 4% interest
Borrowers have the option to indicate the rate at which they were able to take out a home loan. That helps others in conducting sharp negotiations, but it is also an interesting indicator of the state of affairs. It appears that in many cases banks are willing to offer an interest rate of 3.8 – 4% on a home loan with a term of 25 years. That seems a low percentage, but it is still a lot more than the interest that the banks are currently paying to get money.
Annually adjustable interest formula
The interest rate within an annually adjustable interest rate formula is much lower, but on the other hand, the banks earn much more from it. It is possible to pay approximately 2.5% interest, which makes it possible to take out an advantageous home loan. However, it is the banks that benefit most, since the reference index for that credit formula is currently barely 0.097%. This means that the banks have a margin of almost the full 2.5% and have hardly any costs in that regard, while the home loans on the other hand do generate money.
The relatively high interest rates (compared to the market interest rate) on home loans with a duration of 10 or 25 years can best be explained by looking at ‘funding costs’. Such a long term means that the bank has to ‘refinance’ the money at a certain moment. There is a good chance that the interest will have become a lot higher, which means that more costs will have to be incurred. The banks are already anticipating this by raising the market interest rate as it currently exists by a certain percentage in order to be able to cover the higher costs properly later.