Are mortgage rates higher for investment properties? Yes, the interest rate for an investment property mortgage loan is higher than for a primary home.
And, in this article, you will learn more about this matter, so you can use it as a reference when you take a mortgage loan for investment property.
Are Mortgage Rates Higher for Investment Properties? – The Reasons
The lender applies higher mortgage rates because investment property has a higher risk than a primary home.
The owner of the primary home will use it as a living place. Therefore, they will continue to fulfill their obligation of paying the mortgage loan.
On the other hand, the investor uses that property to make income, like renting it out. How they treat the property will be depending on how well the property rental business is.
If they couldn’t get enough rental income, they could run and leave the property, because it is not profitable anymore.
How to Get a Lower Mortgage Rate for Investment Properties?
One of the best methods to get a lower mortgage rate is using heloc for investment property. You can easily manage the loan and plan how much mortgage rate you can take.
On the other hand, you can use the standard method to lower mortgage rates for property loans, such as:
- Improve your credit score – at least you should have a 640 credit score or higher to get the most competitive interest rate. A good credit score also reduces the amount of down payment you should pay.
- Pay a larger down payment (at least 20%) – the down payment is like proof that you are willing to fulfill your obligation to the lenders. So, paying more shows that you want to keep the investment property. And, the lender will see you as the client with low risk, so they will also reduce the rate.
- Improve the Debt-to-Income (DTI) ratio – pay off your debt, so the calculation will give you a better result.
- Increase your cash reserves – prepare at least six months’ worth of mortgage payments in cash reserves to get lower rates.
Investment property might be seen as profitable property for the investor. However, the lender sees it as a high-risk loan which makes it has a higher rate than a primary home loan.
Therefore, you also should treat and approach it differently, so you will get benefits from it. Plus, you also can use our method to get a lower mortgage rate and more benefits. Now, are you ready to invest in property?