Where do the banks get their money to give out mortgages?

That's a great question! Banks get their money from several sources:

Deposits — the most common source. When customers put money in savings accounts, term deposits, or everyday accounts, the bank uses that money to fund loans. The bank pays you a low-interest rate on deposits and charges a higher rate on mortgages — that difference is their profit margin.

Borrowing from other banks — banks lend money to each other overnight on the interbank market to manage their daily cash needs. The rate they charge each other influences the rates they offer customers.

Central bank — in Australia, that's the Reserve Bank of Australia (RBA). Banks can borrow directly from the RBA, which is why the RBA's official cash rate has such a direct impact on mortgage rates. When the RBA raises rates, banks' borrowing costs go up, and they pass that on to mortgage holders.

Bond markets — banks issue bonds to institutional investors like superannuation funds and insurance companies. Investors buy the bonds and the bank uses that capital to fund loans.

Securitisation — banks bundle up mortgages and sell them to investors as mortgage-backed securities. This frees up capital to issue more loans. This practice became famous during the 2008 global financial crisis, when it was heavily abused in the US.

Retained earnings — profits the bank has made and kept rather than paid out as dividends.

In practice, most banks use a mix of all of these. In Australia, the big four — CBA, Westpac, NAB and ANZ — rely heavily on deposits and bond markets to fund their mortgage books. Would you like to know anything else about how it all works?