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. It’s a free market – a bank will factor in the risk of lending and desired profit margin, as long as it remains competitive , it will charge to maximize the profit. Rates in Canada are in the 1.8-3% too
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