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Jul 23 2019

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Investment Mortgage Interest Rates: Current Rates & How they Work

Investment mortgage interest rates currently range from 4.75% to 13%, depending on loan type and borrower qualifications. For shorter mortgages like hard money loans with terms up to 3 years, rates range from 7.5-13%. For permanent mortgages like FHA loans with terms up to 30 years, rates range from 4.75 – 5.2% or more.

Average Daily Mortgage Rates

*Table updated as of 12/14

Common Mortgage Interest Rates and Terms

*Table updated as of 12/14

Conforming FHA Loan Interest Rates

The range of interest rates for conforming loans are as follows:

  • 15-Year Fixed: 4.25 – 5.0%+
  • 30-Year Fixed: 4.75 – 5.2%+
  • 7/1 ARM: 4.4- 4.6%+

A 15-year mortgage has the lowest rates but your amortized payments will be higher because of the shorter repayment term. A 30-year mortgage is the most common with a 30-year amortization schedule. A 7/1 arm is a loan with a fixed rate for the first 7 years and then the rate can adjust once a year for the remainder of the term, based on the prime rate.

Conforming loan interest rates are usually among the lowest because they have to conform to Fannie Mae and Freddie Mac’s guidelines, which lowers a lender’s risk. The rates are typically 4.25 – 5.2% and vary based on the borrower qualifications. Conforming loans typically have terms of 15 years, 30 years or 7/1 arms, which will also affect the rate.

Conforming Loan Interest Rate Factors

The most important interest rate factors are the borrower’s qualifications like personal credit score. The higher your credit score, the better rate you will typically qualify for. Other determining factors include the size of the loan and the length of the loan.

The most impactful interest rate factors for conforming loans are:

1. Personal Credit Score

If you have a credit score of 680 or above (check your score free here), you should expect a competitive interest rate as low as 4.75%. Conversely, credit scores below 680 will receive the interest rates starting at 5.5%.

2. Size of Loan

In order to qualify for a conventional loan, it has to conform with Fannie Mae loan limits with maximum amounts, currently equal to $424,100. In high-cost areas, the loan limits are higher. If the loan is over the limit then it’s considered a jumbo loan and the interest rate will increase. This interest rate increase is usually about +.3%, so if the 7/1 ARM is 4.4%, then the jumbo 7/1 ARM would be 4.7%.

3. Type of Asset

Fannie Mae also looks at the type of asset that you will be financing when determining your interest rate. For example, Fannie Mae will finance a property up to 4 units. The rates you see published generally apply to primary residences which are single unit properties. As the number of units increase, rates generally increase.

Portfolio Loan Interest Rates

Portfolio loans are used to finance single unit and multifamily properties, as well as multiple properties at once. These loans are used for both turnkey properties and properties that need to be renovated. The interest rates are generally between 3.5 and 5.7% and offer fixed rate and variable rates.

There are various types of portfolio loans such as a single-asset portfolio loan, a jumbo portfolio loan and a blanket mortgage portfolio loan. Since the types of portfolio loans vary, their lending criteria and factors that affect the interest rates vary too, although lenders usually require the borrower to have a credit score of 600+ (check your score for free here).

Single Asset Portfolio Loan Interest Rates

The range of interest rates for single-asset portfolio loans are as follows:

  • 5 – 8% with 3 – 30 year terms

A single asset portfolio loan is a conforming loan that a lender keeps on its books to make interest income rather than packaging and selling it. These loans are also referred to as balance sheet loans and the rates usually range from 5 – 8% with terms between 3 and 30 years.

Single Asset Portfolio Interest Rate Factors

Factors that impact a single asset portfolio loan’s interest rate are the lender’s criteria and the term of the loan. The lender usually uses the 6 month LIBOR rate to determine the interest rate given to the borrower. Longer term loans over 10 years generally have lower, fixed interest rates. Conversely, shorter terms from 3 – 10 years usually have slightly higher variable interest rates. Fixed rates are less common in short-term single asset loans.

Jumbo Portfolio Loan

The range of interest rates for jumbo portfolio loans are as follows:

  • 4.6 – 5.7% with 15 – 30 year terms

A jumbo portfolio loan is a loan that exceeds the maximum loan limits set by Fannie Mae. These loans start above $424,100 and have interest rates ranging from 4.6 – 5.7%. Their typical loan terms are from 15 – 30 years.

Jumbo Portfolio Loan Interest Rate Factors

Jumbo loans generally have lower interest rates than other portfolio loans since they are larger in size, starting at $600,000 and going up to and sometimes over $2,000,000. Personal credit score also impacts jumbo portfolio loan rates. A credit score of 700+ (check your score for free here) is generally needed.

Multifamily Mortgage

The range of interest rates for multifamily mortgages are as follows:

  • 6.75 – 12% with 5 – 30-year terms

A multifamily mortgage is a type of portfolio loan that allows investors to finance multifamily properties. These properties can be multifamily buildings up to 4 units or apartment buildings with 5 or more units. Rates range for 4 – 12 % and terms can vary from 5 to 30 years.

Multifamily Mortgage Interest Rate Factors

Multifamily mortgage interest rates are impacted by the loan size, the borrower’s credit score, and the loan term. Generally, the larger the loan, the lower the interest rate, but there isn’t a set guideline for this. Lenders tend to look at the investment itself as well as the borrower’s overall financial position, including liquidity.

Credit scores usually need to be 600+ for qualification (check your score free here), but a borrower with a score over 680 will benefit from the most competitive rates. Loan terms do range from 5 to 30 years, but the most common terms are 15 to 30-year terms. For more information on multifamily mortgages, check out our ultimate guide to multifamily loans.

Blanket Mortgage

The range of interest rates for blanket mortgages are as follows:

  • 5 – 11% with 1 – 30-year loan terms

A blanket mortgage is a portfolio loan that finances two or more investment properties with a single loan. Blanket mortgages have interest rates between 5% – 11% and loan terms between 1 – 30 years. There typically isn’t a limit on the number of properties an investor can finance with a blanket mortgage.

Blanket Mortgage Interest Rate Factors

Factors that impact a blanket mortgage’s interest rate are the size of the loan and the loan term. A borrower’s credit history and finances are looked at, but portfolio lenders don’t focus on them as much as FHA lenders do. Instead, they look at an overall picture of the borrower and the assets.

The typical minimum size of a blanket mortgage is $100,000 and the maximum is $50,000,000. The higher loan sizes generally have lower interest rates, but again it depends on the overall financial picture. Generally, the lower the loan term, the higher the interest rate.

For more information on blanket mortgages, read our article on the fundamentals of blanket mortgages.

Commercial Loan Interest Rates

The range of interest rates for commercial loans are as follows:

  • 5.75 – 7.8% with terms of 5 – 25 years

Commercial loans are used to finance commercial properties, and since the loans are collateralized, they tend to offer lower overall interest rates than other loans. Fixed rate and variable rate loans are offered and interest rates generally range from 5.75 – 7.8%.

Commercial Loan Interest Rate Factors

The factors that have the most impact on commercial loans are the current market rates, the size of the loan, the term of the loan, the type of commercial loan and the creditworthiness of both the individual and the business.

The most impactful interest rate factors for commercial loans are:

1. Current Market Rates

Current market rates impact the interest rates on commercial loans. These market rates vary based on the stability of the economy. When consumers have more money to spend, interest rates are lower, which helps boost the economy. Conversely, when consumers don’t have as much money to spend, interest rates are generally higher.

2. Loan Size

The size of the loan impacts the interest rate as well. The larger the loan size, usually the lower the interest rate when dealing with commercial loan products.

3. Loan Term

Longer term commercial loans usually have higher interest rates than their shorter-term counterparts. Each type of lender does have their own criteria that affect interest rates.

4. Personal Credit Score

The borrower’s creditworthiness affects the interest rate directly with commercial loans. The higher your credit score, the lower your interest rate will be (check your credit score for free here). Most lenders want to see a borrower with a 680+ credit score.

If your credit score is over 680, your interest rate will generally be around 5.75% and alternatively if your credit score is lower than 680 your rate will generally be over 7.8%. To calculate your potential interest rate on a commercial loan, check out our commercial loan calculator.

Homestyle Renovation Mortgage Interest Rates

The range of interest rates for homestyle renovation loans are as follows:

  • 5 – 7% with 15 – 30-year terms

A homestyle renovation (HSR) mortgage is a government-backed, permanent mortgage that can be used to purchase and renovate a 1 unit investment property or second home. It can also be used to buy an owner-occupied primary residence between 1 and 4 units. Interest rates generally range from 5 to 7%.

The rates for homestyle renovation loans are slightly higher than conventional loan rates. These rates can be variable or fixed depending on the lender and the borrower’s qualifications.

Homestyle Renovation Mortgage Interest Rate Factors

The borrower’s credit score and the size of the loan are decisive factors that impact the interest rate. The other factor that impacts homestyle renovation mortgage interest rates is the type of property, specifically if it’s a primary residence or an investment property.

The most impactful interest rate factors for homestyle renovation mortgages are:

1. Personal Credit Score

In order to qualify for a homestyle renovation loan, a borrower usually needs to have a credit score of 640+ (check your score free here). The higher the credit score, the lower the interest rate. For example, if a borrower has a 680+ credit score, the interest rate is generally around 5%. If the borrower has a 640 credit score then the interest rate will usually be closer to 7%.

2. Size of Loan

Since lending criteria for homestyle renovation loans are set by Fannie Mae, there are maximum loan limits. They vary by state, but a loan for a 1 unit property generally can range from $424,100 – $636,150. Homestyle loans offer one loan that can combine the purchase and renovation of the property. However, a higher loan amount doesn’t necessarily mean a higher interest rate.

3. Type of Asset

If the property is a primary residence, the borrower’s interest rate will be lower. For example, if a borrower purchases a single family property to use as his primary residence he can generally expect to receive an interest rate around 5%. If instead, he purchases an investment property that he isn’t going to live in, the rate will usually be closer to the 7% range.

FHA 203(k) Loan Interest Rates

The range of interest rates for FHA 203(k) loans are as follows:

  • 4.75 – 6.5% with 15 – 30 year terms

An FHA 203(k) loan is a permanent government-backed loan for owner occupants. It’s used to purchase and renovate a primary residence. This long-term loan is used to finance properties with 1- 4 units. Interest rates usually range from 4.75 – 6.5% and terms are between 15 and 30 years.

These loans allow a homeowner to finance both the purchase and the renovations of a primary residence. These renovations can be either cosmetic or more extensive, but they have to be approved by the lender and can’t include luxury items such as a pool.

FHA 203(k) Loan Interest Rate Factors

The main factor that impacts an FHA 203(k) loan’s interest rates are the borrower’s personal credit score. The borrower’s debt to income ratio and overall financial standing also impacts the interest rate.

The most impactful interest rate factors for FHA 203(k) loans are:

1. Personal Credit Score

If you have a credit score of 680 or above (check your score free here), you should expect a competitive interest rate as low as 4.75%. Conversely, credit scores below 680 will receive the interest rates starting at 5.75%. In order to qualify for an FHA 203(k) loan, a borrower must have a credit score of at least 640.

2. Borrower’s Financial Standing

A borrower’s overall financial standing impacts the rates on a 203(k) loan as well. For example, the lender will look at the borrower’s debt to income ratio and require 45% or below to qualify. The lender will also look at the borrower’s bank statements and monthly income. Generally speaking, the higher the income and lower the debt, the lower the interest rate will be.

Hard Money Loan Interest Rates

The range of interest rates for hard money loans are as follows:

  • 7.5 – 13 % with 1 – 3-year terms

Hard money loans are used by real estate investors for short term, interest only financing. They close quickly and allow investors to compete with cash buyer’s timelines. They’re commonly used to renovate rental properties and to purchase fix and flips. Their interest rates are usually on the high side between 7 and 13%.

Hard Money Loan Interest Rate Factors

Hard money loan interest rates are impacted by both the deal and the borrower including experience in real estate and overall financial standing. These loans are not conforming so the lending criteria that impacts their rates can vary widely depending on the hard money lender.

The most impactful interest rate factors for hard money loans are:

1.The Deal

The overall needs to make sense to the lender in a few ways. First, they look at the loan to value (LTV) and the after repair value (ARV). Generally, LTV needs to be 90% or less and the ARV needs to be 80% or less. Lenders also consider the borrower’s exit strategy. Usually, it’s either selling the property for a profit or refinancing into a permanent financing solution.

2. Personal Credit Score

The borrower’s credit is less important to hard money lenders than other lenders, but it generally needs to be 550+ (check your credit score free here). A higher score alone doesn’t guarantee a lower interest rate, but coupled with experience flipping houses and a strong overall financial profile will help to decrease the interest rate.

3. Borrower Experience and Financial Standing

The borrower’s bank statements and experience in real estate are the final factors that impact their interest rate. Since an experienced investor with money in the bank is considered lower risk, they will usually qualify for a rate around 7-8%. If the borrower doesn’t have much experience rehabbing houses or has less of a financial cushion, rates can be over 8%.

If you want more information on hard money lenders, check out our hard money lender directory. Here we go into who hard money lenders are right for and what types of loans they offer.

One of our top recommended lenders is LendingHome. If you’re interested in a hard money loan for your next fix and flip project you can fill out a quick online application. You can get prequalified online in minutes with rates as low as 7.5% for prime borrowers.

Bridge Loan Interest Rates

The rates for bridge loans are as follows:

Bridge loans are short-term loans used to purchase commercial properties or investment properties when permanent financing isn’t a feasible option. These loans offer higher interest rates since they are only used for interim financing. The rates for commercial bridge loans are 6.75 – 10.0% and 6 – 9% for residential.

Bridge loans are interest-only short-term loans that are usually +2% higher than the prime interest rate. They are used by borrowers with lower credit scores, for rehab properties, or to season properties with high vacancy rates.

Bridge Loan Interest Rate Factors

Factors that impact bridge loan rates vary between commercial and residential loans. For residential bridge loans, the interest rates are based on the borrower’s overall creditworthiness and the current prime rate. For commercial bridge loans, interest rates are typically based on the six-month LIBOR index plus a spread of 4.5 – 5.5 points.

1. Residential Bridge Loans

Residential bridge loan interest rates are higher than most other loan products because of theshort-termm, non permanent nature of the loans. Lenders consider the buyer’s credit score when offering interest rates and the minimum FICO requirement is generally 650+ (check your score free here).

The interest rate is also impacted by the buyer’s debt to income ratio, which generally should fall in the 43 – 50% range. The overall borrower’s financial profile and the deal are also considered.

2. Commercial Bridge Loans

Commercial bridge loan interest rates are less impacted by the borrower’s credit score, but instead are based on the overall deal and the LIBOR index which reflects current market and economic conditions. It also includes a spread of points.

For more information on bridge loans, read our article on bridge loans. It goes into detail on what bridge loans are and how they work.

Bottom Line

Mortgage interest rates are important to know since they will affect what your monthly payment will be and how much you will pay over the length of the loan. They are influenced by a variety of factors; most often by personal credit score, length of the loan, amount of the loan and type of asset the loan is for.

About the Author

Allison Bethell

Allison Bethell specializes in Real Estate Investment. Allison has fixed and flipped over 100 properties, including residential and commercial properties. She is a licensed real estate broker in Florida. She graduated from Villanova University with a B.A. in Business and Sociology. When Allison isn’t involved in real estate or writing, she loves to travel and has been to all 7 continents. She resides in the Miami Beach area with her husband and dog.

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