10 Factors that Influence Investment Property Mortgage Rates

Investment property mortgage rates are not determined by a single factor. Instead, there are loads of factors that can influence the rates you will be offered.

In this article, we will explore 10 of the most important factors that can influence your investment property mortgage rates. By understanding these 10 factors, you will be in a better position to negotiate a better rate with your lender.

So, let’s get started!

1. Credit score:

One of the most significant factors that will influence your investment property mortgage rates is your credit score. Your credit score is a measure of your creditworthiness, and it is used by lenders to find out the risk associated with lending you money.

Generally speaking, the higher your credit score, the lower the interest rate you will be offered on your mortgage. Conversely, if your credit score is not high, you can expect to be offered a higher interest rate.

2. Loan-to-value ratio:

Another important factor that can influence your investment property mortgage rates is your loan-to-value ratio (LTV). Your LTV is the amount you borrow as a percentage of the value of the property, and it is used by lenders to determine the risk associated with lending you money.

The higher your LTV, the higher the risk for the lender, and consequently, the higher the interest rate you will be offered. Conversely, if you have a low LTV, you will be seen as less of a risk and offered a lower interest rate.

3. Property type:

The type of property you are glancing at to purchase can also influence the interest rate you are offered on your mortgage. For instance, investment properties that are considered to be higher risk, such as holiday homes or buy-to-let properties, will typically be offered a higher interest rate than more traditional investment properties, such as buy-to-hold properties.

4. Location:

It is one of the most important factors that can influence your investment property mortgage rates is the location of the property. Properties located in areas that are considered to be high risk, such as inner city areas or areas with high crime rates, will typically be offered a higher interest rate than properties located in safer areas.

5. Mortgage term:

The length of the mortgage term can also influence the interest rate you are offered. Shorter mortgage terms typically come with lower interest rates than longer mortgage terms. This is because lenders view shorter terms as being less risky than longer terms.

6. Mortgage type:

The type of mortgage you choose can also affect the interest rate you are offered. For instance, fixed-rate mortgages in chicago il typically come with lower interest rates than variable-rate mortgages. This is because fixed-rate mortgages offer borrowers the security of knowing that their interest rate will not change for the duration of the mortgage term.

7. Deposit size:

The size of your deposit can also influence the interest rate you are offered on your investment property mortgage. Lenders typically view larger deposits as being less risky than smaller deposits and, as such, will often offer lower interest rates to borrowers with larger deposits.

8. Real GDP growth rates: 

Mortgage interest rates are linked to economic growth. When the economy is strong and growing, interest rates tend to be higher. This is because when the economy is doing well, there is more demand for money and lending, which can lead to higher interest rates.

9. Inflation:

Inflation can have a number of effects on the economy. One of the most well-known effects is the impact on interest rates. When inflation is high, it can erode the value of your investment, which can make lenders less likely to lend money or offer low-interest rates.

10. Unemployment:

Unemployment can also have an impact on investment property mortgage rates. If unemployment is high, it can indicate that people are struggling to meet their financial obligations, which can make lenders less willing to lend money or offer low-interest rates.