As the name suggests, mortgage rates investment property refers to a loan used in property purchase as a purpose of investment. In a typical property loan, borrowers should agree to pay the lender over time.
Typically, this series of payments are divided into principal and interest. As a security measure for the loan, the purchased property serves as collateral.
A mortgage does not have a fixed rate. It will always change from time to time due to several factors, such as inflation, rates of economic growth, and federal reserve monetary policy. Mortgage rates also differ according to the type of the purchased property.
If you’re an avid property investor, you must have been familiar with rental mortgage rates. Otherwise, here’s all you need to know about investment property mortgage rates in 2022.
Before we dwell further into the topic of mortgage, it is worth noting that mortgage rates for investment property will always be considerably higher than a primary residence.
The amount depends on several factors, such as the type of property, your credit score, and your down payment ability.
As a rough estimate, you should expect the interest rate to be 0.50% to 0.75% higher than your primary mortgage.
This difference is likely caused by the fact that investment properties are considered riskier loan products. In hard economic times, borrowers tend to bail on their investment property mortgage.
For this reason, lenders will protect themselves from any possible risk of default by applying stricter rules and higher interest rates.
Therefore, you should research every lender to get the best mortgage rate in funding your investment property.
What are the current rental mortgage rates?
As previously mentioned, you should expect mortgage rates around 0.50% to 0.75% for your rental property funding. For the exact and updated number, you should go to several mortgage rate tracker websites.
As of today, 25 March 2022, the average mortgage rate for a primary residence is around 4.25% (4.262% APR). By applying the 0.50% to 0.75% increase, the rental property mortgage rate for a single unit should be around 4.75% to 5% (4.762% to 5.012% APR).
However, it is worth noting that those numbers are based on a prime borrower profile, a borrower with a 740 credit score, and a 30% down payment. So, if your credit score is lower than that, you’ll likely get a higher mortgage rate.
For this reason, the average mortgage rate should only be used as a benchmark. Remember that you will have a different investment property rate than other lenders.
So, make sure to compare different quotes from different lenders to get the best deal to fund your rental property.
So, you may wonder, is mortgage rates for a second home different from a mortgage rates investment property?
To understand the mortgage rate difference, you must understand the difference between a second home and a rental property first.
As the name suggests, a second home is a residential property that you purchase in addition to your primary residence.
Typically, in this type of property, you will reside for a certain time of the year like holidays. On the other hand, rental properties are typically purchased for a purpose to earn rental incomes. Unlike a second home, a rental property may consist of several units.
In terms of mortgage rates, it is usually easier and cheaper to get approved for a second home mortgage than a rental property.
It’s even cheaper than the best affordable car insurance. Second-home mortgage rates are usually less than 0.50% higher than your primary residence’s rate.
On the other hand, investment property mortgage rates are usually around 0.50% to 0.75% higher. The difference between a second house and rental property mortgage rates is influenced by the different levels of risk and restriction that each property has.
How to get lower rental mortgage rates?
Getting the absolute lowest mortgage rates for rental property is difficult. However, it doesn’t that it is impossible. Accordingly, there are several ways that you can do to get the best deal out of your rental property loan.
Bigger down payment
Purchasing a rental property is one of the simple ways to invest in real estate. To get the best deal out of your lender, be sure to make a bigger down payment.
In general, the possible added cost of your mortgage will be reduced if you put at least 20% down. To do so, you may want to consider borrowing against the equity in your primary residence to increase your rental property’s down payment.
Fix your credit score
Conventional loans are preferred by most rental property buyers to finance their rental property purchases.
However, this type of loan is very sensitive to credit scores. Therefore, make sure that you have a good credit score to get the lowest mortgage rates possible.
To do so, you can get a handle on bill payments, review your credit reports, and limit the request for new credit.
Like finding a car insurance quote NSW, it is worth comparing quotes between lenders to find the best deal for your rental property financing.
A 2018 research by Freddie Mac shows that homebuyers who have submitted multiple loan applications have lower chances of getting a high mortgage rate.
So, be sure to compare rates between at least 3 to 5 lenders to find the best deal for your rental property loan.
Conclusion and summary
To sum up, mortgage rates from the rental property will always be higher than a primary residence. Roughly, you should expect an increase around 0.50% to 0.75% more than your primary residence.
Similar rules also apply for a second home purchase, in which property loan mortgage rates are also more expensive.
Despite the high mortgage rates, there are several ways to get the best deal out of your property loan.
The three steps that you can do are putting a bigger down payment, improving your credit score, and comparing quotes between lenders.
If you do that, you may have lower mortgage rates than cheap car insurance companies. This summary also concludes our 2022 guides on mortgage rates investment property.