This with mortgage rates can sometimes be a little tricky. You have to decide whether you should have fixed interest or variable, how long you should possibly fix up the interest if you choose fixed and so on. There are several factors that come into play and the idea is that you should choose what you think is best depending on what you predict that the future has to offer in terms of interest rates and the financial market.
But how do banks and lenders actually decide what mortgage rate they should have?
The interest rates that should be known are the repo rate (policy rate) and bank, which stands for InterBank Offered Rate. The repo rate is determined by the Riksbank and is a key interest rate that has a certain impact on the banks’ lending rates in general. It is set depending on the economic situation to steer Sweden’s economy in the direction we prefer. If what is now an economic crisis, you prefer a low interest rate, which is why in the days you chose not to raise the repo rate.
bank also affects, for example, the interest rate, since this is a reference rate that is calculated as an average of the interest rate that banks use when lending to each other. It may even be that bank has a greater significance for what you get for mortgage interest than what the repo rate has. This is something that can be good to keep in mind when considering mortgages.
When a lender lends you money and determines the mortgage rate
It is based on several different things. bank’s three-month interest rate is part of the whole thing, but when you take a mortgage over a long period of time, for example 40 – 50 years, you cannot use a three-month interest rate as a basis. For these long lending times, a better hedge is needed and the lenders then use mortgage bonds. In order for it to work, interest rates are adjusted to the three-month interest rate and this entails interest rate swaps, which also entails an extra cost. It is added to the bank rate.
So there are a number of different things that actually affect what interest rate you finally get
The lender must put in all their own costs and then even a small margin so that they earn something. Another thing that can be added, for example, is if the lender borrows money in foreign currency, since exchange rates must also be included. What you can say is that the repo rate is generally controlling but bank probably has a slightly more decisive role for how high your mortgage rate will be.
By having a little better control over how it all works, you also have a bit better prospects when you go to the bank or other lender to fix a mortgage.