With mortgage rates dropping all throughout 2019, a lot of new buyers have found the motivation to enter the real estate market. But what can real estate investors expect when it comes to investment property mortgage rates in 2020?
US Housing Market 2020
Investment property mortgage rates today are a lot lower than what was forecast last year. And they’re predicted to stay just as low for the coming months. Last November, experts predicted that 30-year rates would reach around 5.5 percent in 2019. But according to Freddie Mac, current rates are actually much lower, at 3.6 percent. 15-year fixed mortgage rates are projected to be 3.05 percent. This is just to show how a drastic drop in mortgage rates was never really a part of any housing market predictions.
Before we get into the details of what’s to come, let’s clear up the difference between a regular mortgage and mortgage rates for investment property.
How Much Higher Are Mortgage Rates for Investment Property?
Agencies usually have a separate set of fees for owner-occupied homes and for investment properties. Fannie Mae and Freddie Mac set most of the rules and guidelines regarding mortgage rates and fees today. Typically, when getting an investment loan, you pay higher fees. Rule of thumb: the higher your fee, the higher your investment property mortgage rate is over regular rates. Fees are directly correlated with your mortgage rate.
Typically, investment property mortgage rates are 0.5 to 0.75 percent higher than the regular interest rate. So if the going rate is 3.6 percent right now, then:
- A 30-year investment property mortgage rate would range from 4.1-4.35 percent for a single-family home
- A 15-year investment property mortgage rate would range from 3.1-3.8 percent for a single-family home
There are also the basic down payment requirements of an investment loan. Fixed and adjustable rates for a single-family home require 15 percent down. Fixed and adjustable rates for multi-family homes (2-4 units) require 25 percent down. Obviously, the higher your credit score, the better. A higher credit score combined with a larger down payment will give you a better chance at low investment property mortgage rates.
Related: Can’t Get a Mortgage? Try a Rent to Own Real Estate Investment
Current Investment Property Mortgage Rates
Just a couple months back, Freddie Mac published a mortgage rate forecast which estimated rates to average 4.3 percent this year, reaching 4.5 percent in 2020. Earlier forecasts even predicted rates averaging above 5 percent. However, as we mentioned already, these estimates were off base. Mortgage rates have been dropping since 2018, and while they were expected to drop this year, such a large drop was not predicted. With mortgage rates already in the range of 3 percent, there is a good possibility of even lower rates for the rest of the year. According to NerdWallet.com, these are the mortgage rates as of today:
- 30-year fixed mortgage rate: 4.08%
- 15-year fixed mortgage rate: 3.62%
- 5/1 ARM mortgage rate: 4.28%
Mortgage Rates Might Continue Dropping
What’s going on in the US housing market that’s dropping rates so low? Investment property mortgage rates follow the same trends that regular rates do. Let’s take a look at what factors are keeping interest rates low:
- Fed Rate Cuts: This affects mortgage rates indirectly. The Federal Reserve doesn’t have control over mortgage rates but they do control the rate at which banks can lend each other money. This rate was cut again by a quarter point on the 18th of September, 2019. Some officials expect there to be another cut before 2020. This move can influence the mortgage.
- Trade Wars: President Trump’s efforts to increase tariffs have not been helping our economy speed up. While he did delay the previously proposed tariffs on $300 billion worth of Chinese goods, this small concession doesn’t necessarily mean the trade war is coming to an end. What does this have to do with investment property mortgage rates? Typically a slower economy can cause lower mortgage rates.
Related: The Best and Worst States to Get a Mortgage
What the Leading Housing Agencies Project
If you want to know the fate of investment property mortgage rates in 2020, you need to know what direction they’re heading in. While they’re low now, housing agencies across the nation are confident that they will climb back up into the range of 4 percent. Average reports are for a 4.38 percent rate by the end of 2019. According to data from The Mortgage Reports, here’s what each agency is predicting:
- National Association of Realtors: 4.40%
- National Association of Home Builders: 4.46%
- Mortgage Bankers Association: 4.40%
- Freddie Mac: 4.30%
- Fannie Mae: 4.20%
- Realtor.com: 4.50%
Investment Property Mortgage Types
If you’re looking for the best investment property mortgage rates to finance your second home, you should know which types of loans you can take out. Here are your options:
- Conventional Loans: This is the standard loan, sometimes referred to as a “conforming” loan. The 30-year mortgage rate averaged 4.41 percent for a conventional loan for a primary residence. The typical down payment is from 15 to 20 percent.
- Government-Backed Loans: These are great for real estate investors who invest in a multi-family home, live in one unit and rent out the others. You can choose from an FHA loan or a VA loan depending on the requirements you meet. 30-year VA mortgage rates averaged just 4.20 percent. FHA mortgage rates averaged 4.49 percent. The great thing about these loans is how low the down payment is- as low as 3.5 percent for FHA and 0 percent for VA.
- Commercial Loans: These are better suited for financing bigger investment properties with more than 5 residential dwelling units. They are more expensive and have different rates. Learn more about commercial real estate investing.
Related: What Kind of Mortgage Options Are Best for Rental Properties?
Investment Property Analysis Based on Your Mortgage
You won’t really know how investment property mortgage rates affect your real estate investments unless you include them in your analysis. Contact your local lenders and come to terms on a mortgage. Based on that, you can visit Mashvisor and start an investment property analysis. You just enter the basic data about your investment property, and our tools do the rest of the work. By including your financing method, we can provide much more accurate projections of your return on investment. All of this can be done simply in a matter of minutes. Interested in learning more about how this works? Learn more about our product.
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