Are rates and down payments higher for investment properties?

If you’re thinking about buying an investment property, you’re probably wondering about rates, down payments, mortgage options and so forth. After all, you’ll want to get the best deal you can in order to get a better return on your investment. But don’t be surprised when your lender quotes you a higher interest rate or requires a higher down payment. Although you may see it as unfair, it’s actually pretty standard – and it’s a way for the lender to protect themselves.

Investment Properties & Risk

To understand why rates and terms are a little more rigid for investment property loans, you have to understand that investment real estate is considered a higher risk – at least most of the time.

Lenders see loans for primary residences as much lower risk, because they know that if the borrower gets into financial difficulty, their house payment is likely the last thing they’ll stop paying. After all, if they stop making their house payment, they could face foreclosure and possibly eviction.

With an investment property however, lenders know that most borrowers consider it a secondary asset, and therefore are less likely to make it a high priority if they get into financial trouble.

What to Expect

When applying for an investment property loan, don’t be alarmed if your lender quotes you a mortgage rate that is a bit higher than the going rate for a loan on a primary residence. Likewise, don’t be surprised if your lender requests a slightly higher down payment (maybe 25-30 percent). While the higher down payment may not necessarily be required, your lender may advise it in order to lower your interest rate.

Also, when considering all of this, keep in mind that mortgage rates are a necessary component of keeping a mortgage company running. So when you pay your interest rate, you’re not just paying for the loan itself – you’re also paying for your lender’s time and service. Hopefully, you’re working with a lending company that provides excellent service, making the interest payments worth your while.

Here at Luxury Mortgage, we pride ourselves in offering exceptional service to our borrowers and we believe our rates are reasonable. If you’d like to get an accurate, up-to-date quote on an investment property loan, please feel free to give us a call.