What is mortgage interest?
You can borrow money from a mortgage lender to buy a house, but the lender does not lend this money for free. You must eventually pay back all the money; for this, you pay mortgage interest.
Interest is a fee that you must pay to the lender for borrowing the money. You pay the mortgage interest on the amount that was borrowed to buy the house.
What are the current mortgage interest rates?
Lenders – the companies that lend money for buying a house – regularly change their interest rates. How high the interest rate is, depends on 3 elements:
1. Capital market interest rate
The first element is the so-called capital market interest rate. The capital market interest rate is what lenders must pay to borrow money, which they then lend to you for buying a house.
Lenders then increase this capital market interest rate by adding a risk premium and a profit margin. They increase this rate by a percentage because they run the risk of not getting back the money they lent. In addition, they add a percentage for profit.
2. Risk premium
Lenders then increase this capital market interest rate by adding a risk premium and a profit margin. They increase this rate by a percentage because they run the risk of not getting back the money they lent. In addition, they add a percentage for profit.
3. Interest rates of competitors
Furthermore, lenders look at the mortgage interest rates of competitors. When one competitor lowers their rate, often several mortgage lenders will lower their rates.
As these conditions are continuously changing, mortgage providers often change their rates every week. The rates that banks offered a month ago may already be outdated.
Therefore, it is important to look at the current rate, meaning the rate that lenders are offering today.
