While it varies based on market fluctuation, you can generally expect investment property financing to be at least 0.5% higher in rate when compared to primary home financing.
In mortgage finance, pricing adjusters are added to a loan, which can change the structure, and/or costs associated with taking out the mortgage.
Typical loan pricing factors:
- Occupancy, i.e. investment property
- Credit score
- Loan-to-value ratio of the property
- Loan Amount
- Loan program
- Property type; single-family residence, multi family, etc.
The biggest pricing adjuster is occupancy, with an adjustment of 1.75% of the loan amount. In other words, a lender prices a mortgage by raising or lowering the interest rate based on any applicable adjusters like loan-to-value and credit score in addition to property occupancy. Let’s say, for example, that you’re looking for the lowest possible rate on an investment property loan, paying discount points. Assuming you had excellent credit and extremely low loan-to-value — such as a loan of 60% of the property value or lower — you’d pay 1.75% of the loan amount in the form of discount points to secure the lowest possible interest rate. Want to avoid the premium? Take a higher interest rate and the lender can absorb this percentage by raising your interest rate upwards of 0.5%.
- As a rule of thumb, a 20% down payment with a 80% loan to value, the pricing adjustment will be 3.250%.
- A 25% down payments with a 75% loan to value, the pricing adjustment will be 1.750%.
- Your choice on what make since for you investment.