Investment Property Mortgage Rates - How to reduce them?

Before you negotiate your investment property mortgage rates with the bank you must understand the factors that banks take into account before deciding on your rate.

The interest rate are not always based on what an investment property will rent for. There are several things that can affect the mortgage rates, which are typically higher for investment properties than primary or first home loans, to begin with. If you are considering becoming an investor in rental housing or renting out your primary home and purchasing another home to live in, this is important to know.

The first factor that affects the investment property mortgage rates are percentages that are based on the debt to income ratio. If you have more than 36% of your income going toward debt repayment, you can expect to pay higher mortgage ratesthan what the average person will. In fact, to get these lower advertised rates, the ideal debt to income ratio is 28% or less of your income going towards mortgage payments.

Another factor that affects the mortgage rates is the amount of your down payment. If you put up 20% for your down payment, you might be eligible for the lower interest rates because you will have more equity in the property and that decreases the chances that you will default on the mortgage. If you do, the lender has better chances of recouping their investment and that is what mortgage lenders consider first and foremost, whether it is your primary home or investment property.

Your credit score can affect the mortgage rates you can expect to pay, as well. Those that have credit scores that range between the 760 and 850 range can enjoy investment property mortgage rates that are as much as 3% lower than those that have credit scores that around the 650 or lower range. When you are considering the income you can make off of your investment property, this 3% difference in the interest rate can greatly affect the cash flow you can expect.

Cash flow is another aspect that lenders might consider when setting your mortgage rates because negative cash flow or mortgage payments that are more than you can rent a property for will count against your debt to income ratio and your investment property mortgage rates could fall into the area where a higher interest rate might be required or it might not be approved at all.

Another thing that lenders consider when funding the property is the value of the house. If the market value of the property is lower than your buying price then the bank will be concerned and will raise the mortgage rate. On the other hand if you buy a property below market value the banks may consider giving you a loan at a lower interest rate.

The banks will consider lowering the interest rate if there is additional income that can help make the payment to be derived from other investment properties or other partners that might be investing with you.

When you are negotiating investment property mortgage rate, it helps to have good credit scores, a property that will produce a good cash flow and a good credit record without payment delinquencies. Of course, an investment property that has already been a rental with an income stream that can be proven might have an effect to get lower mortgage rates, but it isn't guaranteed.

When you are negotiating mortgage rates, the ideal investment property won't necessarily guarantee access to the lowest investment property mortgage rates, but it might help if other factors are met satisfactorily. The banks also look at your knowledge and competence as a property investor before deciding how much risk they are willing to take.

In order to lower your investment property mortgage rates you have to think like the bank and be prepared to answer their concerns. They are risking their money on your competence. If you are knowledgeable and well prepared then your lender will have more confidence in you and you will be able to make huge savings by locking into lower mortgage rates for your investment property.

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