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Risk-Based Pricing
Mortgage companies and other financial services or lending entities use a risk-based system to pre-qualify applicants and to provide a basis for the adjustment of interest rates with an eye toward mitigating the potential for loss with higher risk customers via increased fees. These "risk-based pricing" models normally take into account elements of the individual's financial or credit history as well as the perception of risk associated with the property in question and with any collateral involved in the transaction.
Additional factors called into consideration may include property type, proposed use for the property, the amount of the loan, the intended purpose of the loan, the income of the applicant, and other assets held by that individual as well as documentation on the assessed value of the property and its location. The factoring of all of these elements may have a positive or a negative impact on the interest rate associated with the loan in question.
More terms explained
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