Compare Current Investment Property Mortgage Rates
You’ll typically pay anywhere from 0.25 to 0.75 percentage points more for investment property mortgage rates compared to primary residence rates. The additional amount helps to cover the extra risk lenders take that you might default on your monthly payments.
There are things you can do to help reduce the cost markup, however. Keep reading to learn more about where today’s interest rates stand, and what you can do to secure the best rate available.
Today’s investment property mortgage rates
Investment property mortgage rates are generally 0.25 to 0.75 percent higher than the mortgage rates on conventional loans for residential properties. That’s because mortgage lenders are exposed to more risk when they make investment property loans.
During times of financial hardship, tenants may not pay rent, the owner may struggle to afford repairs or the property may be vacant for an extended period. To cover the extra risk of mortgage default, lenders charge increased rates for loans on rental properties.
To get a sense of how much your investment property mortgage rate could be, let’s take a look at current rates by mortgage loan type:
Current mortgage rates by loan type
Loan Product | Interest Rate | APR |
|---|---|---|
| 30-year fixed rate | 6.96% | 7.20% |
| 20-year fixed rate | 6.32% | 6.49% |
| 15-year fixed rate | 6.24% | 6.56% |
| 10-year fixed rate | 6.85% | 7.51% |
| FHA 30-year fixed rate | 5.86% | 6.55% |
| 30-year 5/1 ARM | 6.38% | 7.19% |
| VA 30-year 5/1 ARM | n/a% | n/a% |
| VA 30-year fixed rate | 5.71% | 5.90% |
| VA 15-year fixed rate | 5.44% | 5.80% |
Can you use a government-backed loan to buy an investment property?
In most cases, investment property loans are only offered by conventional mortgage lenders. Government mortgage programs — such as FHA loans insured by the Federal Housing Administration, VA loans backed by the U.S. Department of Veterans Affairs and USDA loans guaranteed by the U.S. Department of Agriculture — only allow you to finance a home you’ll live in as your primary residence.
However, there are some streamline government refinance programs that allow you to refinance a primary residence that’s being converted to a rental property — if you currently have an FHA or VA loan.
How do lenders set investment property mortgage rates?
In general, lenders use the same basic criteria to set rates for investment properties as they do for primary residences. Your credit score and loan-to-value (LTV) ratio (which measures the percentage of your home’s value being financed by the mortgage) carry the most weight.
For example, Fannie Mae — one of the two largest mortgage entities that set conventional loan guidelines — implements cost markups for certain loan types (including investment property loans) based on a borrower’s LTV ratio and credit score range. This means the higher rate you’ll get for taking out an investment property loan is also affected by your credit score and down payment.
Read more about how interest rates are determined.
Don’t know your credit score? Get your free score on LendingTree Spring today.Other types of investment property mortgage loans
- Home equity loan. If you’re sitting on a chunk of equity in your primary residence, you may want to take out a home equity loan to help fund the larger investment property down payment requirement. Home equity loan rates are usually fixed, and you’ll receive the funds all at once.
- Home equity line of credit. Known as a HELOC for short, this option works like a credit card secured by your home equity. You can use as much or little as you want, pay the balance down and reuse it for a set period.
- Cash-out refinance. If current rates are lower than what you’re paying on your first mortgage, consider borrowing more than you owe and pocketing the difference with a cash-out refinance. You can use the funds to pay for some or all of the down payment on a rental home.
- Bridge. If you’re in the fix-and-flip business, a bridge loan provides short-term money you can borrow on a home you intend to sell. Rates and costs are usually higher than with regular investment property loans, but bridge loans allow you to get financing on the property — even if you plan to put it on the market.
- Non-QM loan. If you have plenty of cash for a down payment, but you don’t want the hassle of income documents, a type of nonqualified mortgage called a debt-service coverage ratio (DSCR) loan may get you the money you need without the extra paperwork.
- Hard money. If your credit scores are too low for the financing types above but you have a stockpile of cash for a down payment and closing costs, a hard money loan may be worth a look. Expect high rates and mortgage points, and watch for prepayment penalties.
Investment property vs. conventional mortgages
If you want to compare investment property loans and conventional loans, it can be helpful to remember that most investment property loans are conventional loans. Typically, they just have a higher interest rate and higher upfront costs attached.
Example: How much investment property rates cost compared to conventional home loan rates
To get an idea of how investment property mortgage rates stack up against rates on a primary mortgage, we’ve crunched the numbers for a 30-year fixed-rate loan on a $400,000 home with 20% down.
| Primary residence | Investment property | |
|---|---|---|
| Loan amount | $320,000 | $320,000 |
| Interest rate | 6.5% | 7.375% |
| Monthly payment (Principal and interest) | $2,022.62 | $2,210.16 |
| Life of loan interest paid | $408,142.36 | $475,657.77 |
What the numbers mean:
- You’ll pay $187.54 more per month with the investment property mortgage
- You’ll spend $67,515.41 more in interest over the full repayment term
Tip: Save on taxes for homes rented for less than 2 weeks a year
If you rent out your second home for 14 days or less per year (not uncommon in the age of Airbnb rentals), the house is considered a personal residence and you can keep the rental income tax-free. An added bonus: You can take advantage of the mortgage interest deduction for a second home.
Note that this won’t affect your interest rate — but it could put some extra cash in your pocket.
Pros and cons of investment property loan rates
You can finance a property that earns you income You can deduct mortgage interest as a business expense You may qualify for certain lender incentives that can help keep costs down, depending on your property type and location | You’ll pay a higher rate than for a primary residence mortgage You’ll need to meet stricter underwriting requirements, including making a bigger down payment You likely won’t be able to take advantage of government-backed mortgage programs |
How to get the best investment property mortgage rates
- Boost your credit score. If your credit score needs some work, take some time to improve your score before applying for an investment property loan. The best mortgage rates are typically given to those with excellent credit scores — 780 or higher.
- Save for a bigger down payment. Fannie Mae’s new guidelines give a cost break to investment property loan borrowers who have at least 30% equity in their property. With that in mind, you can take steps to reduce your rate by putting more money down on the home.
- Reduce your existing debt. Your debt-to-income (DTI) ratio compares your monthly debt payments to your monthly gross income and shouldn’t exceed 43%, in most cases.
- Shop around for a loan. Gathering quotes from more than one lender can also save you money. Borrowers who get quotes from multiple lenders stand to save an average of $76,000 on interest over the life of their mortgage, according to LendingTree data.
Learn more about how to apply for a mortgage.
Ready to compare quotes from top lenders? Get Personalized Rates TodayFrequently asked questions
The average mortgage rate on an investment property loan will vary according to current market rates. However, as a rule of thumb, you can anticipate investment property mortgage rates being 0.25 to 0.75 percentage points higher than average mortgage rates for a primary residence.
Yes — but that doesn’t mean you shouldn’t shop around for the best investment property mortgage rates. Some lenders specialize in these types of loans and may offer incentives, which could include a lower down payment requirement for multiunit properties.
In some respects, it’s harder to get an investment property loan than it is to get a mortgage for a primary residence. You’ll often need a stronger credit score and a larger down payment.