What is an underwriting rate?

An underwriting rate is a test interest rate used by a lender during the process of underwriting a loan. It helps to determine the maximum loan amount and payback rate a borrower can expect to receive.

Where have you heard about underwriting rates?

An underwriting rate is a type of stress test, so is usually set higher than the expected initial interest rate of the loan. That way, it makes it less risky for the lender.

What you need to know about underwriting rates.

As financial institutions have become stricter about who they lend to, increasing the difference between the current interest rate and the underwriting rate is a way of tightening credit.

The underwriter's role is to determine if the amount of risk associated with a customer is low enough to grant the loan. Some will only consider applicants with a high credit score and stable job, while others may accept those who have a less than perfect credit score but at a higher rate of interest.

Find out more about underwriting rates.

Read our definitions of underwriting to find out more about the process of evaluating risk.