Consider a family who borrows $250,000 to purchase a new home at a fixed interest rate of 8.5%. If inflation increases from 4% t

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Damm [24]

2 years ago

8

Consider a family who borrows $250,000 to purchase a new home at a fixed interest rate of 8.5%. If inflation increases from 4% t

o 5.5%, how will this impact the real interest rate the family will be paying?

Business

1 answer:

vitfil [10] · Answer 1 · 2023-02-13T17:32:43+03:00

The home loan must be repaid at a real interest rate of 3%; (8.5%-5.5%=3%).

<h3>Real interest rate </h3>

A real interest rate is adjusted to remove the effects of inflation and gives the real rate of a bond or loan. A nominal interest rate refers to the interest rate before taking inflation into account.

Learn more about real interest rate here:

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