I'm trying to understand the factors that determine the interest rates that mortgage lenders offer borrowers. My understanding is that rates are determined based on the lender's cost of funds and the borrower's credit profile. Is there anything else? Doesn't the lender make a decision about profit margin? And what affects the lender's cost of funds? Can anyone recommend some more reading on this or a good reference source?

  • $\begingroup$ What country are you interested in? $\endgroup$
    – Alex
    Jun 23 at 16:38
  • $\begingroup$ To fill in some of the gaps: lenders funding costs largely depend on rate swaps, which in turn very closely track central bank rates. Lenders do consider profit margins, but in many countries the mortage market is very competitive, so they have to set competitive rates which squeeze profits, especially in a low interest rate environment. $\endgroup$
    – BrsG
    Jun 24 at 19:32
  • $\begingroup$ @Alex: United States $\endgroup$ Jun 24 at 19:48


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