Do you plan to buy a house to use as investment property? That is a good idea. Investment property allows you to generate extra income that can help your finance, especially during a difficult time. To start this investment, you can use the investment property loan.
Therefore, you also should understand the average interest rate for investment property. It help you a lot to plan your loan in the future.
What is The Current Average Interest Rate for Investment Property?
The calculation that you will find here is only for you who don’t take heloc for investment property. This one is for a full mortgage loan for investment property.
First of all, the interest rate for an investment property loan is higher than standard rates for primary homes and even second homes. The rate is around 0.5%-0.75% higher.
The current average interest rate for a primary home is around 4.5% (4.542% APR). therefore, you can expect to pay around 5% to 5.25% (5.042 – 5.292% APR) for your investment property.
However, with today’s property market condition, the interest rate could change without you knowing it. Therefore, you should prepare more than that number for safety.
Several Factors That Affect Interest Rate for Investment Property
As mentioned before, the market condition affects how much interest rate you should pay for your loan. Other than that, other factors can change the average interest rate for a mortgage loan you take, such as:
- Credit score (you get a lower interest rate for a 740 or a higher credit score,)
- Debt-to-income (DTI) ratio
- Cash Reserves
- Loan-to-Value (LTV) ratio.
In short, personal finance hold a significant role in determining how much interest rate you should pay. Other than that, a down payment also has a big role here. 25-30% down payment most likely will give you a much lower interest rate.
Now, you know how much interest rate you should pay for investment property. Make sure you plan it out before you decide to take a loan for this type of property. Otherwise, it will only give you more financial problems in the future.
On the other hand, with proper planning, the investment property could become a great source of extra income.
Plus, you can even use the income to pay off your loan and its interest rate. So, it is all about how you treat this loan. Treating it in a good way will give you a good result as well.