Investment property loans cost more than owner-occupied mortgages
Lenders charge higher interest rates on investment properties than on homes you live in. The difference typically ranges from 0.5 to 1.5 percentage points higher, though the exact gap depends on the loan type, your credit score, the property's location, and how much cash you put down. A conventional mortgage on your primary residence might be 6.5%, while the same lender's rate on a rental property could be 7.2% or higher.
The reason is straightforward: lenders see rental properties as riskier. Owner-occupied homes have lower default rates because people prioritize keeping a roof over their heads. Investors can walk away more easily if the numbers stop working. Lenders price that risk into the rate they offer you.
Key Takeaways
- Investment property rates run 0.5 to 1.5 percentage points higher than owner-occupied rates at the same lender, depending on loan type and your financial profile.
- Conventional loans, FHA loans, and portfolio loans each have different rate structures and requirements for investment properties.
- Your down payment, credit score, debt-to-income ratio, and the property's cash flow all affect the rate you receive.
- Rates vary significantly between lenders, so comparing quotes from at least three sources is standard practice before locking in.
How conventional investment property loans are priced
Conventional loans (those not backed by the Federal Housing Administration or Department of Veterans Affairs) make up the majority of investment property financing. Most conventional lenders require at least 20% down on a rental property, though some accept 15%. The rate you get depends partly on how much equity you're putting in—borrowers with 30% down typically receive better rates than those with 20%.
Conventional lenders also look closely at the property's rental income. They want to see that the monthly rent covers the mortgage payment, property taxes, insurance, and maintenance with room left over. If the property doesn't generate enough income to meet their debt-service-coverage ratio (usually 1.2 to 1.25), the rate goes up or the lender declines the loan entirely. Some lenders will accept lower ratios if you have strong personal finances—high income, low existing debt, and a credit score above 740.
FHA and portfolio loan rates for investment properties
The Federal Housing Administration technically does not insure loans on investment properties, but some lenders use portfolio loans (loans they keep on their own books rather than selling to investors) to finance rentals. Portfolio loan rates vary widely because each lender sets its own terms. These loans often carry rates 1 to 2 percentage points above conventional rates, but they may accept lower down payments or weaker cash-flow numbers than conventional lenders.
Portfolio loans are most common at smaller regional banks and credit unions. Rates and terms change frequently based on the lender's appetite for investment property risk. If a conventional lender has turned you down, a portfolio lender may still consider your application, but expect to pay for that flexibility.
What moves your rate up or down
Your credit score is the single largest factor after loan type. A score of 760 or higher typically unlocks the best rates a lender offers. Each 20-point drop below that usually costs you 0.25 to 0.5 percentage points. A score below 700 may disqualify you from conventional financing altogether.
Your debt-to-income ratio—the percentage of your gross monthly income that goes to debt payments—also matters. Lenders usually cap this at 43% to 50% for investment property borrowers. If you already have a mortgage, car loans, and credit card payments, adding an investment property loan can push you over that limit. The property's rental income counts toward your income, but only if the lender believes it's reliable.
The property itself affects your rate. Single-family homes typically get better rates than multifamily buildings or commercial properties. Properties in strong rental markets with stable tenant demand receive lower rates than those in declining areas. Some lenders charge more for properties in certain states or regions where they have less experience.
Fixed versus adjustable rates on investment properties
Most investment property loans come as fixed-rate mortgages, where your rate stays the same for the entire loan term—typically 15 or 30 years. Fixed rates on investment properties currently run higher than adjustable-rate mortgages (ARMs), but ARMs carry the risk that your payment will jump when the initial fixed period ends.
ARMs on investment properties are less common than on owner-occupied homes, and many lenders don't offer them at all for rentals. If a lender does offer an ARM, the initial rate might be 0.5 to 1 percentage point lower than the fixed rate, but after the fixed period (often 5, 7, or 10 years), the rate adjusts annually based on a market index. For investment properties, the fixed-rate option is usually the safer choice because rental income is already unpredictable.
How rates differ between lenders and loan products
The same borrower with the same property can receive quotes that differ by 0.5 percentage points or more across different lenders. Larger national banks often have higher rates on investment properties because they sell most loans to secondary markets and follow strict guidelines. Smaller lenders and credit unions may offer better rates because they keep loans on their books and have more flexibility.
Loan products also vary. A 30-year fixed conventional loan will have a different rate than a 15-year fixed on the same property. Interest-only loans (where you pay only interest for the first 5 to 10 years, then principal and interest) sometimes carry lower initial rates but higher rates overall. Some lenders offer rate discounts if you use them for your personal banking or have a large deposit account with them.
Comparing rates and locking in
Most lenders provide rate quotes that are valid for 30 to 45 days. During that window, you can lock in the rate, meaning the lender guarantees that rate even if market rates move higher. If rates fall before you lock, you can usually shop around and get a new quote. If rates rise after you lock, you're protected.
Lenders also charge points—upfront fees paid at closing that buy down your rate. One point typically costs 1% of the loan amount and lowers your rate by 0.25 percentage points. On a $300,000 loan, one point costs $3,000 and might lower your rate from 7.5% to 7.25%. Whether points make sense depends on how long you plan to hold the property. If you'll sell or refinance within five years, paying points usually doesn't pay off.
Frequently Asked Questions
Why is the interest rate on my investment property higher than my primary home?
Lenders charge more because rental properties have higher default rates than owner-occupied homes. Investors can walk away if cash flow turns negative, while homeowners are more likely to keep paying to stay housed. That extra risk gets priced into your rate.
Can I get a better rate if I put down more than 20%?
Yes. Most lenders offer rate discounts for down payments of 25%, 30%, or higher. The exact discount varies by lender, but putting down 30% instead of 20% might lower your rate by 0.25 to 0.5 percentage points. Ask each lender what their rate schedule is for different down payment levels.
Do investment property rates change based on the type of property?
Yes. Single-family homes get the best rates. Duplexes and triplexes typically cost 0.25 to 0.5 points more. Four-unit buildings and larger multifamily properties carry higher rates still. Commercial properties and specialty properties (short-term rentals, mobile home parks) may be harder to finance or come with significantly higher rates.
What happens to my rate if I refinance my investment property later?
Refinance rates depend on current market conditions, your credit score at that time, and the property's current value and rental income. If rates have fallen since you bought, refinancing could lower your payment. If rates have risen or your credit score dropped, refinancing may not make sense. Compare the new rate and closing costs against how long you plan to hold the property.
Can I lock in a rate before I find a property?
No. Lenders issue rate quotes only after you've identified a specific property and submitted an application. Rate locks are tied to that property's address, value, and loan amount. Once you find a property and get a quote, you can lock the rate while you continue your search, but the lock expires if you don't close within the stated period.