I get that the fed funds rate influences mortgages: it goes up so do mortgage rates. But can anyone explain why there is such a high difference between fed funds (I believe it’s 1% now) vs mortgages (5-6%)? I know also that banks apply all sorts of premiums (default, market risk…) but why are they that high?
As a comparison, mortgage rates in the EU are still sub-2% with ECB rates at zero.
In: 1
Because the banks want to make money.
Because the middle-men inbetween want to make money
Because a certain number of people will default on the loan and walk away.
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