Interest rate
An interest rate is the annual percentage cost that a borrower pays a lender in exchange for the use of capital. In mortgage lending it determines how much of each monthly payment goes to the bank and directly drives the total cost of the loan.
Key points
- Can be fixed for the entire term or variable, pegged to a reference index.
- Distinct from APR: the interest rate does not include fees or insurance premiums.
- Set by the bank based on its refinancing cost, loan term, and borrower risk profile.
- A 0.5-point difference over 20 years can add up to several thousand euros in extra cost.
- Negotiable through a broker, especially for borrowers with strong savings profiles.
Frequently asked questions
What is the difference between the interest rate and the APR?
The interest rate compensates the lender solely for the capital lent. The APR (Annual Percentage Rate) adds all mandatory costs on top: borrower insurance, origination fees, and guarantee fees. Only the APR allows a like-for-like comparison of two loan offers.
How does a bank set the interest rate on a mortgage?
The bank starts from its market refinancing cost (often benchmarked against French government bond yields — OATs), then adds a spread covering risk and return. Loan term, loan-to-value ratio, and borrower creditworthiness all affect that spread.
Why does the interest rate differ from one bank to another for the same borrower?
Each institution has its own commercial strategy, funding costs, and growth or profitability targets. A bank eager to attract new clients may offer rates below those of a less aggressive competitor. It is precisely this disparity that a broker leverages to secure the best deal.
In practice
A borrower receives an offer at 3.40% over 20 years for €250,000. After negotiating through a broker, they secure 3.10% from a competing bank. Over the full term, the difference in interest cost exceeds €8,000, easily justifying the brokerage fee.
Official sources
- Fixed or variable: which interest rate to choose? · economie.gouv.fr
- The annual percentage rate (APRC) · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr