When you take out a mortgage or other type of loan, your lender will charge a percentage of the loan as a fee for borrowing its money. The interest rate adds to the total balance of your loan; typically, you must pay at least the interest on your loan each month. Prevailing interest rates affect how much you can afford to borrow: if interest rates are high, you may not be able to buy an expensive property. High interest rates also can cause the value of any property you own to stagnate or fall. Understanding prevailing interest rates can help you to assess loans more
Types of Interest Rates
The amount of interest that you pay as a borrower depends on whether the interest rate is
variable or fixed.
- Variable rates depend on the prime rate, which is the rate of interest that banks charge their preferred customers (and thus is the lowest available rate). Variable rates change when the prime rate shifts.
- Fixed rates do not fluctuate but remain the same throughout the term of the loan.
How Interest Rates Are Determined
While the banking industry can change the prevailing rate for mortgages and other loans, interest rates for mortgages and other loans depend on forces other than the banking industry. For
- Short-term and variable interest rates are set by the Federal Reserve.
- Long-term and fixed interest rates are determined by the demands of businesses and
individuals who invest in U.S. Treasury bonds.
- Interest rates for loans that are less likely to be repaid, such as credit card debt, depend in
part on risk; banks charge higher interest rates for such relatively risky loans.
Last updated Nov. 20, 2018
Happy New Year 2020
Wishing you happy holidays and a wonderful new year. Best wishes from everyone at GetLegal.Read More 23 Dec 2019, Monday
Slip-and-fall Claims on Commercial Property
Your Best Chance of Recovery When You Are Hurt on Business Premises As a general rule, all property…Read More 02 Dec 2019, Monday
Thanksgiving—A Time of Gratitude
Life is about connection… about the power of relationships to help us find and nurture our best se…Read More 27 Nov 2019, Wednesday