Banks charge interest on mortgages as compensation for granting the loan. How do you think a change in the interest rate affects the profit received by banks? If the loan is a fixed-rate loan, it might seem that the profits of banks would not change. However, people often refinance their mortgages to take advantage of the lower interest rates, decreasing banks' profits. This motivates banks to implement safeguards to their profits such as prepayment penalties. Have you ever taken out a mortgage? In which country did you take it out, and what were the options you were offered? Is mortgage restructuring available to you? Share your experiences with your peers and discuss how you think banks can change the terms of a mortgage to protect their expected returns from default and prepayment risks.

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When interest rates change it can affect banks profits in various ways 1 Fixedrate loans Banks profi... View the full answer