Rental mortgage rates are also called investment mortgage rates. It is because these rates are for properties meant to be rented out.
There is a difference between buying a home for a primary residence and buying one to gain rental income.
Mortgage rates for investment property are generally higher than mortgage rates on traditional home purchases.
Moreover, the requirements to obtain an investment property loan are usually stricter. Despite the higher mortgage rates, it cannot be denied that investing in properties is a good idea.
How Much Higher are Rental Mortgage Rates?
Mortgage rates on rental properties will always be higher than rates on primary residences. But how much higher is it?
How much higher the mortgage rates investment property depends on some factors. For example, your down payment, creditworthiness, and the type of investment property you choose.
But as a practical rule, you may expect the interest rate on your investment property to be 0.50 percent to 0.75 percent higher than the rate on your main mortgage.
Lenders may also add an upcharge because they consider investment and rental property mortgages are riskier.
Borrowers would prefer to cover their primary home mortgage first than their investment property mortgage when times get rough.
How to Get a Lower Rental Property Mortgage Rate
Though applying for a rental property loan is somewhat challenging, there are several ways that you can do to get the best possible mortgage rate on your rental property loan. Here they are.
- Improve your credit score. If you already have a strong credit score, you just need to maintain it.
- Make a higher down payment. The higher your credit score and the more down payment you submit, the better the rate you will get.
- Work with a mortgage broker to help you get the best investment property mortgage rate.
- Get quotes from some mortgage lenders, including credit unions or community banks.
Types of Loans You Can Use to Purchase a Rental Property
Except government-insured loans, you can finance a rental property with various loans. The most common financing methods for buying a rental property are investment property loans, bridge loans, home equity loans, hard money loans, cash-out refinance, and Home Equity Line of Credit or HELOC.
If these options do not work for you, you can go for owner financing. But if you want to purchase a commercial property, it is better to search for commercial real estate loans.