Abstract

The European Community legislation, embedded into italian regulation, prescribes minimal information banks should provide clients before entering into a loan agreement. Starting from the reading of the sheets of a sample of italian banks, the note explores the effects on the calculation of upstream common interests of two clauses in mortgages with «French style» redemption: the method of calculating the effective rate by which to determine the payment amount and the choice of different frequencies of the installment, keeping constant the interest rate. The aim of this paper is to highlight how these choices may affect the total amount of interests paid, even when, in the second case, TAN and APR are constant. Furthermore it is observed that the practice of declaring the annual rate of funding decomposed into a risk-free rate of reference (normally in compound interest) and a spread (which should represent the risk profile of the borrower) may not help the average customer to fully understand the cost annual rate of interest paid on capital.