23 Finance costs

millions of €
  2017 2016 2015
Interest income 320 223 246
Interest expense (2,517) (2,715) (2,609)
  (2,197) (2,492) (2,363)
Of which: from financial instruments relating to categories in accordance with IAS 39      
Loans and receivables (LaR) 32 25 34
Held-to-maturity investments (HtM)
Available-for-sale financial assets (AfS) 15 12 7
Financial liabilities measured at amortized cost (FLAC) a (2,091) (2,383) (2,288)
 
a Interest expense calculated according to the effective interest method and adjusted for accrued interest from derivatives recognized in the reporting period that were used as hedging instruments against interest rate-based changes in the fair values of financial liabilities measured at amortized cost in the reporting period for hedge accounting in accordance with IAS 39 (2017: interest income of EUR 260 million and interest expense of EUR 165 million, 2016: interest income of EUR 175 million and interest expense of EUR 109 million, 2015: interest income of EUR 182 million and interest expense of EUR 89 million).

The year-on-year decrease in finance costs is mainly attributable to the decrease in external funding of T - Mobile US.

EUR 176 million (2016: EUR 164 million; 2015: EUR 217 million) was ­capitalized as part of acquisition costs in the financial year. The amount was calculated on the basis of an interest rate in the average range between 4.4 percent at the start of the year and 3.9 percent at the end of the year (2016: between 3.5 and 4.4 percent) applied across the Group.

Interest payments (including capitalized interest) of EUR 4.0 billion (2016: EUR 3.6 billion; 2015: EUR 3.7 billion) were made in the financial year.

Accrued interest payments from derivatives (interest rate swaps) that were designated as hedging instruments in a fair value hedge in accordance with IAS 39 are netted per swap contract and recognized as interest income or interest expense depending on the net amount. Finance costs are assigned to the categories on the basis of the hedged item; only financial liabilities were hedged in the reporting period.