Mortgage Rates On Investment Property—All The Things You Need To Know

If you want to start investing in property, you need to understand everything about mortgage rates on investment property. It works the same with residential mortgages, but lenders might treat it differently.

Therefore, it is important to be careful. If you want to start a successful investment business, this is where you start.

Mortgage Rates on Investment Property Are Higher

Finding an investment property with a cheap mortgage will be very difficult. When the lenders know that the building will be used as an investment that generates cash flow, that is when your hope for getting a super-cheap mortgage will disappear.

This is very common in the real estate world. Investment property will always be more expensive than a primary residence. It is because the investment property business is more volatile than primary residence business.

When the economy gets tough, people will choose to bail on their investment property, but they will do everything in their power to protect their primary residence. As a result, lenders set higher mortgage rates to protect themselves.

The mortgage rate of an investment property is usually 0.50% to 0.75% higher than your primary mortgage interest rate.

Make sure to shop around before making a decision to get the best deal. You can also apply for HELOC for investment property as a financing option.

mortgage rates on investment property

What Affects Your Interest Rate

Unfortunately, not everyone can take a second mortgage, especially on an investment property. There are many things the lenders will consider before giving you a loan. It will be more difficult compared to the time you apply for a mortgage for your primary residence.

Read More  Real Estate Investing For Beginners

The lenders will check your credit score, cash reserves, loan to value ratio, and most importantly debt to income ratio. You might need to improve your financial profile to ensure a competitive interest rate.

Be Prepared for Higher Down Payment

Don’t be surprised if you are asked to pay a higher down payment. That is just a part of financing an investment property.

Just like the higher mortgage rate, higher down payment is also the lender’s way to protect themselves, by lowering the risks of the buyers bailing out.

Purchasing a property is not easy, especially if you plan to use it as an investment. But if you plan it well and finance it right, property investment can result in a lot of money. So, don’t be afraid of higher mortgage rates, just make sure that you plan your finances carefully.

Leave a Comment