Back to all the factors that play an elementary role in the calculation of an interest rate and the annual percentage rate (APR).
A bank loan implies remuneration to the lender for the capital loaned to a borrower. In addition to the capital, the person who undertakes to repay the financing is indeed indebted for an additional sum which makes up the bank interest. The amount due is calculated based on the nominal interest rate entered in a credit offer.
How is a nominal interest rate calculated in a mortgage?
To calculate this rate, the banking establishment uses a scale which it defines and which it will update over a given period. The policy of the Fine Bank should be considered since it is partly the engine of mortgage rates.
Currently, banks are encouraged to support household projects with taxation on deposits of their surpluses. Also, the interbank market rates, which help them obtain liquidity in exchange for an interest rate, are particularly attractive.
Among the other most influential indicators on the calculation of a home loan rate, it is necessary to look at the side of the borrower profile: household income, professions, the presence of financial wealth, which provides additional guarantees, the quality of account management and many other criteria which are specific to the policy of each establishment.
The rate will be higher or lower depending on the terms of the credit
The longer the duration of the financing, the more the rate tends to increase. Competition is also an important factor in calculating the interest rate since the various players seek to win over and retain their customers with the mortgage. To connect with new prospects, banks must present sufficiently attractive commercial offers with competitive rates.
In this case, the more quality the profile, the more interesting the commercial proposition is generally in reaching the customer.
The lowest rates are therefore reserved for customers with a good financial situation which reduces the risk of default during the repayment phase. Banks will favor this target with a prime rate.
What is the APR in a mortgage loan offer?
Once the nominal interest rate is known, however, a borrower does not have all the information on the overall cost of financing. The appropriate calculation to deduct is formalized by the APRC which adds the nominal rate with the additional expenses in addition to the capital borrowed.
To the nominal rate, it is thus necessary to add the cost of loan insurance, measured by the insurance rate, required by all banking establishments, although optional. It intervenes to guarantee the repayment of the credit in the event of death or disability during the life of the contract.
Finally, the calculation of the APR is supplemented by the integration of the additional costs which are invoiced by the bank and, possibly the professional in banking intermediation and the real estate agency. As such, they can take the form of application fees, brokerage fees or agency fees which are paid by the borrower over the entire duration of its financing. Please note that an APR cannot exceed the limits imposed by the usury rates updated quarterly by the Agree Bank.