High Investment Returns – When is a Higher Interest Rate on Your Loan a Good Idea?
We are all taught from day one and we all learn the same lesson – when it comes to loans, the lower rate is always better. But that view is too simplistic and for that reason ultimately not accurate in all cases. There is one dividing line in this kind of thinking: Residential vs Commercial. A residential loan made to a borrower for his or her primary residence will always be better with a lower rate. There is no exception assuming matching payment schedules. In this case, the source of repayment is produced independent of the property. A borrower goes to work everyday to make money so they can shell out the monthly payment on their mortgage. The borrower’s income does not change relative to the size, type, or quality of house they buy. This is an instance where a higher or lower rate is given by a bank based on the stability of the borrower’s income not the property’s income. This means that a lower rate will ultimately require a lower monthly payment which is good because a borrower
