Investment property mortgage rates are the interest rates applied to loans used for purchasing or refinancing properties that are not primary residences. These properties include:
- rental homes
- vacation homes
- multi-unit buildings
Because banks and mortgage lenders view investment properties as higher-risk loans, the rates are usually higher compared to loans for owner-occupied homes. Investment property mortgage rates can be 50 to 87.5 basis points above mortgage rates on primary properties.
Mortgage providers will also require larger down payments and stronger borrower qualifications. If you’re a mortgage broker or an aspiring one, understanding investment property mortgage rates is important if you want to guide your clients properly. You must lead them toward the right property loan products while managing their expectations for their investments.
More risk for investment properties
The reason for this jump in investment property mortgage rates is that mortgage lenders are taking on more risk when lending to real estate investors. More risk means a higher interest rate and stricter borrowing requirements. Higher rates help mortgage lenders offset the risk of potential default.
After all, if your clients invest and rent out their investment property to generate rental income, it’s possible that they might experience periods of vacancy. In turn, this increases the likelihood of defaulting on the mortgage. If your clients are financially unprepared, they might prioritize paying their primary mortgage first and walk out on their investment property mortgage.
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