Definition
The credit risk premium is the spread between the risk-free rate (government bonds) and the rate actually charged to the borrower. It represents the compensation demanded by the lender for the risk that the borrower won't repay.
Factors that increase the premium: - Low credit score (< 680) - High loan-to-value ratio (> 80% uninsured) - Property type (rental property > primary residence) - Unstable income (self-employed, contract) - B or private lender (much higher premium than A lender)
Concretely: a borrower with an excellent profile (score 780+, 20% down, stable employment) gets the best negotiated rate. Each factor degrading their profile adds basis points to their rate. A typical B borrower pays 1-3% more than a comparable A borrower.