Circling back to the OP's question; in the case of real estate loans (and certain other long term loans), it's not uncommon for them to be priced at (+/- 1%) of inflation. For example, I have a 30 year home loan priced at 3% interest. Once you factor in inflation, is the bank really making much or anything? In fact, as the debtor I would be foolish to pre-pay such a loan. Ignoring the interest write-offs (as that's a very country and loan specific thing), the fact that the loan hovers around the inflation rate means any pre-payment carries an opportunity cost risk without a large (any?) financial benefit.
I just want to take a sidebar here to talk about bank loans as opposed to loans from other entities. Your points are valid for loans form entities other than banks. However, I think you are misrepresenting the nature of a loan from a bank.
When banks make a loan, the money that they loan is not the bank's money. They don't even loan money that they have from depositors*. Further, that money does not even exist until the loan is made.
The very act of loaning the money zaps that money into existence.As such, the bank is the beneficiary of quite the sweetheart deal. They get to collect interest (typically several times the principal of the loan) on ... nothing. At least nothing of theirs.
Where does the wealth that this new money represents come from? It is shaved off every dollar in existence at the instant the loan is made - in the form of a reduction of that money's purchasing power. While society seems to be OK with this, in my estimation it is a
criminal theft of purchasing power. I think society just does not understand how loans work, otherwise they'd be at torches and pitchforks.
Not making the loan does not carry any opportunity cost to the bank, as there is no money sitting around at the bank that they can use for any other purpose. The money does not exist until the loan is made. Edit: strikethrough. While this paragraph is true, it is based upon a misreading of your point about opportunity cost.
The financial industry is a parasite that is incrementally absorbing all the wealth of the entire world through this process.
With this knowledge, run the mental experiment behind foreclosure. Disgusting.
* Yes, there is a very small percentage of the loan that is made with money in the bank's possession. But to a first order approximation, it is overwhelmingly (I think currently in the US 90%) newly-created money.
