Aren’t banks trying to make money like every other business? If ROI on mortgages is only 2.5%, but market investments are 7%+, why do banks lend out mortgages at all? Is it a low risk thing? How do banks decide how much of their portfolio goes toward lending out mortgages?
In: Economics
Banks can loan money from very risk-averse investors. The mortgage can be divided into parts with different risks. Let’s house can be sold for 70 % of the loan capital, and that 70 % is practically risk-free and bank can loan money with 0.5 % interest for that amount. The rest of the mortgage is risky, but it gets higher share of the interest, totaling 7+% for the risky part.
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