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
It has to do with balancing risk and return. Mortgages are backed by the government and by an asset that typically appreciates in value. Think of it as eating the salad at lunch to compensate for the ice cream for dessert later (the higher but inconsistent market returns).
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