Eli5 – where does the increase in mortgage interest go?

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Bonus points for explaining this for my country NZ – where we have a reserve bank that set the OCR.

I think(?) globally interest rates for home mortgages have risen sharply over the last year. And I get that banks have to make a profit. Our OCR has gone from around 1% to 5% while the retail banks have gone from charging 3% to 8% (roughly pocketing the 2-3% margin) BUT where does the baseline increase go? Ie OCR was 1% now 5% so who is getting that additional 4% of interest on every bodies money??

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Anonymous 0 Comments

In the US, the government has a “Federal Funds Rate”, and it’s in simple terms the cost for banks to borrow money from the government. When that goes up, the interest rate on loans to citizens/businesses naturally have to as well.

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