With the Federal Reserve raising interest rates, it comes as no surprise to real estate investors that mortgage rates are beginning to climb. On November 2, 2022, the Federal Reserve unanimously voted yes to its third consecutive increase of 0.75 of a percentage point on its way to a target of 3.75% to 4%, which is a significant increase from the record low in March 2020. That month, Federal Reserve rates were 0% to 0.25%, and mortgage rates had fallen to an attractive 3%. While rates have undoubtedly risen, there are several ways to ensure that the interest rate associated with your next mortgage is as low as possible.
Put Down More Money Up Front
One of the absolute best ways to secure a lower interest rate on your investment property mortgage is to put down a larger down payment. Most of the time, 20% is ideal, but if you can afford to put down 25% or even 30%, you can save yourself thousands of dollars overall and secure a lower interest rate. The more you put down, the less you’ll need to borrow. That’s because borrowers who can pay larger down payments are more attractive to lenders, and the less risk involved for the lender, the lower your interest rate will be.
Improve Your Credit Score
The higher your credit score, the more likely your lender will give you a lower interest rate. Once again, it’s all about risk and reward. If your credit score is on the lower end of acceptable, lenders will see you as a risk, and they will charge you a higher interest rate. If you aren’t checking your credit score once a year, now is the perfect time to start. You are entitled to one free copy of your entire credit report each year from each of the three major bureaus – Experian, Equifax, and Transunion. Get your copies, make sure the information is correct, and dispute anything that seems out of place. Even better, work with a credit professional who specializes in assisting investors.
Get Multiple Quotes
Getting a lower interest rate often involves checking with multiple lenders to determine which one can give you the best deal. However, there are factors to consider other than the interest rate, so be sure that you read the fine print very carefully before agreeing to a loan. By working with an independent broker, you will have access to several sources of capital without having to put in the legwork of completing several applications and managing several lines of communication – we always recommend working with a broker to ensure you receive the most competitive offer for your circumstances.
Borrow from Lenders that Specialize in Real Estate Investing
Finally, if you’re relying on your personal bank for investment loans, your interest rates may be higher than they need to be. Traditional banks tend to consider your credit score and history more than anything else, so if yours has any imperfections whatsoever, it will have a significant impact on your interest rate. Rather than pushing paper around with traditional banks, it’s best to seek out a lender that specializes in real estate investing. This way, your credit score is only one small consideration among many. These lenders look at the actual property you want to purchase, the plans you have for that property, and more. If everything checks out, you might be surprised at your interest rate offers – even if your score isn’t perfect.
Interest rates are on the rise all over the nation, which means that mortgage rates are on the rise, too. While there’s little that can be done to lower the base rate, things like paying a bigger down payment, improving your credit score, shopping around, and always borrowing from lenders that specialize in real estate investing can help you get the lowest rates possible.