Interest rates and terms of payment are set by the Ministry of Local Government and Regional Development and the Housing Bank in accordance with general principles decided by the Norwegian Parliament. Currently, Housing Bank interest rates are set in accordance with, and follow the fluctuations of, interest rates in the money market.
Floating interest rate
The interest rate is determined on the basis of the average observed market interest rates over two months in government securities (Treasury bills) with a remaining maturity from 0 to 3 months. An interest margin of 0.5 percentage points is added to cover administration costs and losses on loans.
The interest rate is adjusted every two months if the changes in the calculation are 0.1 percentage points or more. Floating interest rate in January and February, is calculated on the basis of observed average effective interest rate in September and October the previous year. Floating interest rates in March and April are calculated on the basis of observed average effective interest rate in November and December the previous year, etc.
Fixed interest rate
The Housing Bank offers 3, 5, 10 and 20-year fixed-rate agreements. The basis for the determination of the fixed interest rates are the average of the observed market rates within one month for government securities (bonds) with similar maturities. When the offered fixed interest rate is longer than the longest remaining maturity of government securities (between nine and eleven years), the borrowing cost are projected as follows:
- Interest rates on 10-year fixed-rate loans is calculated by first finding the difference between yields on the longest government bond and interest rate swap with the equivalent market value weighted maturity. The difference from the interest rate on an interest rate swap with 10 year maturity, is then subtracted.
- Interest rates on 20-year fixed-rate loans is calculated by adding the difference between yields on interest rate swaps with 20 and 10 year maturity to interest rate on the longest government loan.
An interest margin of 0.5 percentage points is added to cover adminsitration costs and losses on loans.
The fixed interest rates offered by the Housing Bank are adjusted every month if the changes observed in the market for government securities are 0.1 percentage points or more. The observations in January is the basis of fixed-rate offered in March. The observations in February, is the basis of fixed-rate offered in April, etc.
The general principles of interest rate determination may be subject to revision by parliament.