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  • Alessandra Rizzotti

    We'll never get houses at that rate. Is there a limit to the interest rate? Is it 1,000,000%?

    • MakinSense Babe

      So lenders compete against each other for your business (i.e. to loan you money for a mortgage then collect your interest payments). So in their best interest, they'd keep the rate they charge you not too far off from what other lenders charge so that they stay competitive. So it wouldn't ever be 1,000%. But the idea with these loans is they just clip interest payments from you for a long long time (which is great for them).

      Overall, the interest rate they charge us on a mortgage is based off of the interest rate the government pays to borrow money. Then, the lender just tacks on an extra premium to that based on our credit status, debt, etc etc. (So like having bad credit would mean they tack on extra to the interest rate to compensate for us being a risky borrower).

      • Alessandra Rizzotti

        Overall- I'm not a fan of extra interest rates. Do they ever benefit someone though who is trying to build credit, for example? (Pardon me for being financially illiterate).