You must all already know that investing in properties is beneficial, especially for a long term. Property investment most commonly means buying a home or commercial building that you do not live in, meaning you rent it out.
If you want to know more about this type of investment, here is all you need to know about mortgage rates for investment rental property, which are different from the cheapest car insurance.
Introduction to Investment Property Mortgages
You need an investment property mortgage when you purchase an investment property. Investment property mortgages are also known as rental property mortgages, especially among real estate agents.
While lenders usually call it non-owner-occupied mortgages. The reason for this is because lenders categorize loans by the occupancy, leading to these 3 following kinds of home loans:
- Owner-Occupied Mortgages: As the name implies, these mortgages are for those who buy a home that they want to live in as their personal residence. These loans require borrowers to move into the bought home within 60 days or 2 months of closing the loan. Moreover, borrowers also must live in the home for at least a year. After that, borrowers are allowed to rent out the home without their loan terms being changed.
- Second Home Mortgages: These mortgages are specifically for those buying a home they want to use as a second home for their family, relatives, or friends. And lenders forbid renting out the home. If borrowers rent out their home with a second home mortgage on it, the loan can be called due and should be paid all in one lump sum.
- Non-Owner-Occupied Mortgages: These mortgages are for people buying a home they intend to rent out. If at any time borrowers want to change their rental home to their personal residence, they are free to do so without having their loan terms being changed.
Mortgage Rates for Investment Rental Property
If you think that the non-owner-occupied mortgage is flexible, in which you can change your home from rental to a personal residence at any time, it is because this type of mortgage has higher rates as well as higher down payments than other types of mortgages.
So, how much higher are the mortgage rates for investment rental property? The rates range from 0.25 percent to 0.75 percent higher than owner-occupied mortgages.
Moreover, you will be at the lower end of this range if your down payment is bigger. You can put down on an investment property mortgage at least 20 percent.