Investment Property Mortgage Rate

Determining investment property mortgage rates is an inexact science, as mortgage rates often fluctuate and dozens of mitigating factors can positively or negatively affect the interest rate.

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Because lending institutions are free to set their own interest rates— and their own criteria for determining interest rates— coming up with an average mortgage rate can be difficult. However, there are a few ways that rates can be looked at and broken down to determine what you might expect your rate to be, based on several different criteria.

It is generally accepted that you should not borrow any more than twice your expected earnings while some recommend two and a half times one’s expected earnings. The amount you want to borrow relative to the amount of your earnings will affect the mortgage rate you’re given. Mortgage rates for investment properties also tend to be higher than the mortgage rate for a primary residence, so don’t expect to get a bottom-of-the-barrel rate for an investment property. All things considered, your rate may only be slightly higher than an individual applying for a mortgage for a primary residence if you meet certain requirements.

Income and debt are two of the biggest things that can work for —or against— a person applying for a mortgage on an investment property. If more than 36 percent of your income goes toward paying off debt, you have a greater chance of a higher investment property mortgage rate. Experts recommend that only 28 percent of your income be used to pay your mortgage payments. If these criteria are met, you can expect the mortgage rate to be significantly lower than if more of your income was to be used paying off debt or a mortgage.

One of the first things you should ask yourself when investigating investment property mortgage rates is how much money are you able or willing to put as a down payment. The rule of thumb is that lower rates are generally awarded to individuals who can offer 20 percent or more for a down payment. Some lenders require larger down payments for investment properties. While this is not a hard and fast rule, closely investigate what you can afford as a down payment and what you believe you will be able to handle in the future.

Your mortgage rate may depend heavily on your credit score. Of course a lower credit score means a greater chance of a higher rate. Mortgage rates for investment properties can vary as much as 3 percent between those with a higher credit score rating (between 760 and 850) and those with a lower rating (below 620). FICO scores can have a huge effect on mortgage rates, so determine whether it’s worth raising your score before pursuing an investment property.

Ultimately, while these issues affect investment property mortgage rates, other factors come into play heavily as well. Whether more than one individual applying for a mortgage has a steady monthly income can be a huge factor for some banks. Others will look closely at the value of the home and compare it with the amount requested for the mortgage.

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