Final answer:
To determine whether it's better to be a borrower or lender at various times, mortgage interest rates must be compared with the rate of inflation. Borrowers benefit when interest rates are below inflation, while lenders benefit when interest rates are above inflation. The value of a mortgage loan is also measured by its market price in the secondary loan market.
Step-by-step explanation:
When evaluating whether it is better to be the person borrowing from a bank to buy a home or the bank lending money, we can consider the mortgage interest rates and the rate of inflation. In periods where the mortgage interest rates are lower than the inflation rate, it would generally be better to be a borrower since the real cost of the loan is reduced over time. Conversely, when the mortgage interest rates are higher than the inflation rate, it would tend to be better to be the lender, as the value of the repayments in real terms is preserved or increased.
For practical valuation of a mortgage loan, banks often estimate what another party is willing to pay for it in the secondary loan market. Banks might sell loans that they originate to other financial institutions, which emphasizes the significance of the sales price of the loan as a measure of its present value. This market-based approach to valuation reflects the concept of a loan being an 'asset' to a financial institution.