Understanding Investment Property Interest Rates: A Comprehensive Guide

Investment property mortgage rates have been a topic of interest for real estate investors and homeowners alike. Current investment property mortgage rates have been fluctuating in recent months. Mortgage rates generally moved up a bit in February, with 30-year mortgage rates averaging 6.52%. With inflation still higher than expected, the average 30-year fixed mortgage rate rose to 7.05 percent as of April 3, 2024. The 30-year fixed-rate mortgage averaged 6.82% for the week ending April 4, according to Freddie Mac.

Investment property mortgage rates are typically one percentage point (and up to four points) higher than traditional home loans. This is due to the increased risk associated with investment properties. Lenders see investment properties as risk investments compared to primary residences, hence the higher interest rates.

To arrive at the rates above, we added 50 basis points to the average rate for a 30-year, fixed-rate mortgage. Mortgages for investment properties can range even higher, depending on various factors such as credit score, loan amount, and down payment.

Discover how rising interest rates impact real estate investors, from rental rates and occupancy rates to mortgage costs and cap rates. Rising interest rates can affect the overall profitability of an investment property, as higher mortgage costs can eat into your rental income.

Second home mortgage rates vs. investment property mortgage rates. Mortgage interest rates are higher for second homes and investment properties. Lenders consider second homes and investment properties to be risk assets, leading to higher interest rates for these types of properties.

Overall, understanding investment property interest rates is crucial for investors looking to maximize their returns and make informed decisions. By staying informed about current mortgage rates and market trends, investors can better navigate the real estate market and make strategic investment choices.