Institutional Factors

As a rule of thumb, it takes a spread of 2% to 5% between the interest paid by lenders and the interest paid to lenders for them to break even. Individual Institutional lenders vary in where they set this ratio. Normally, the cost of borrowing mortgage money fluctuates depending upon the following considerations affecting lenders:

Deposit Cost - The cost of obtaining money from depositors, in order to have money to offer borrowers.

• How much interest must savers be paid in order to attract their money into lending institutions?

• What is the cost of advertising and promotion in order to attract savers?

Sales Cost - The cost of marketing loans to borrowers.

• What are the costs involved in attracting loans?

• How much must be spent to get good loan applications coming steadily in to the lender?

Administration - How much does it cost to operate the institution, taking into account rent, utilities, salaries, overhead, etc.?

Reserves - What legal reserves must be set aside? Profit - How much profit can reasonably be expected?

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