Interest Rate

Before a lender can quote you a rate, he needs to understand the financing risk of the property, and that means calculating the stabilized net cash flow using the past one to three years of income and expenses, normalized, adjusted for inflation, and with the appropriate underwriting reserves applied.  In other words, it is unreasonable to request a rate quote without first determining the LTV, DSCR and the overall loan risk.

While some lenders post rates, the posted rate simply represents the best rate available for the least amount of risk.  Therefore, you can soft quote the "best available rate", but qualify your quote by stating that you will need to understand the financing risk of the property to quote a more reliable interest rate.

What is Interest?

Interest is a fee, paid on borrowed capital. Assets lent include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in finance lease arrangements. The interest is calculated upon the value of the assets in the same manner as upon money. Interest can be thought of as "rent on money".

The fee is compensation to the lender for foregoing other useful investments that could have been made with the loaned money. Instead of the lender using the assets directly, they are advanced to the borrower. The borrower then enjoys the benefit of using the assets ahead of the effort required to obtain them, while the lender enjoys the benefit of the fee paid by the borrower for the privilege. The amount lent, or the value of the assets lent, is called the principal. This principal value is held by the borrower on credit. Interest is therefore the price of credit, not the price of money as it is commonly - and mistakenly - believed to be. The percentage of the principal that is paid as a fee (the interest), over a certain period of time, is called the interest rate.