I have been talking with brokers and I am trying to figure out what are the critical factors that determine interest rate. Is owner occupied better than Investment, how much does it matter how the property is used does tradesman storage (electricans, plumbers) get a better rate than auto painting and manufacturing. The questions seem to have impact ,so I would like to know how they work. Can anyone explain the criteria model.
Interest is determined by how risky it is to lend you money compared to someone else. If you are less risky, then you pay lower interest rates. There are natural factors that determine this interest though. The federal government pays interest on it's debts. If the federal government will pay a bank 3% interest, the bank will not give you a loan at 3% - you are far more risky than the federal government. Anyone less risky than you, that a bank can lend to, will pay a lower interest rate. Here is where you land on the general pecking order. Federal Government Bonds, Municipal Government Bonds, Corporate Bonds, You, Junk Bonds.
Within the 'you' range, is all standard citizens wanting business loans. The bank really wants to see whats your likelihood of the business failing, and if it fails, your earning potential to pay off the loan anyway Trade jobs may be less likely to fail or may have earn good salaries anyway. Best thing is to be honest. You know the business you want to open, don't lie about it to the bank - thats illegal. |
