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What Is a below Market Interest Rate?

Kristie Lorette
Kristie Lorette

A below market interest rate is a rate on a loan that is less than the average rate. Typically, the benchmark for determining whether an interest rate is below market or not is the commercial bank lending rate. Below market interest rates are generally reserved to spur economic development, so these rates are offered to low or moderate income individuals or families.

The U.S. Department of Housing and Urban Development (HUD) also offers a housing program to assist HUD residents in finding affordable and safe housing. HUD refers to its below market interest rate program to BMIR. As far as the HUD program is concerned, the below market interest rate is not about taking out a mortgage loan at a less expensive interest rate than the average rate. In this case, the BMIR is about below market value rental rates for the residents that qualify for this program.

Man climbing a rope
Man climbing a rope

Below market interest rates are most commonly associated with government programs, such as the HUD program. Programs that offer less expensive interest rates allow low and moderate income families to play on a level playing field with the consumers who can afford to qualify for the going interest rate on loan programs.

In order for individuals and families to qualify for the programs that offer below market interest rates, certain criteria must be met. For example, there are income limitations on the consumers that can qualify for these types of loans. Generally, the income limitation is set below the average median income for the geographic area where the below market interest rate program is available.

Another criteria or limitation on obtaining loans with below market rates is the number of properties the consumer owns. Most of these special government programs look at homes and properties owned in the past as well as currently. The review of these properties also includes inherited properties.

Other limitations require that the below interest market rate loan must be on the primary residence of the home of the borrower. Another condition of most of these programs is when it comes time to sell the home, many programs require that the home to be sold to someone else who is in a similar situation. In other words, it should be sold to someone else who has low to moderate income and is in need of a below market interest rate loan so that they can have affordable housing options.

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