If I borrow 200k from a bank or building society to buy a house in say 2018, why is the interest rate on that loan variable for the next 25 years? Shouldn’t it be the internet rate when the bank loans the money to me.
If the bank has loaned me money when interest rates are low, then interest rates go up, aren’t they just creaming off a whole load of profit from me?
In: 10
Because the bank’s borrowing costs are also variable (their depositors expect a rate that moves with short term rates), and you don’t have an entity with government backing to buy long term fixed rate mortgages from the banks.
The bank gets money from their depositors and loans it to you at a marked up interest rate, so their costs are usually rising with their revenues when your loan rate goes up.
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