The mortgage rate for a rental property depends on many factors including your credit score, debt-to-income ratio, loan-to-value (LTV) ratio and the cash flow characteristics of the property. Your loan terms may also vary depending on the number of units in the property.
Rental property mortgage rates are usually 0.250% to 0.500% higher than the interest rate for a mortgage on a property you live in. Please note that a mortgage on a rental property that you own free and clear is considered a cash out refinance even though you are not refinancing an existing loan. You are typically required to pay a higher mortgage rate for a cash out refinance as compared to a rate and term refinance or purchase loan.
Additionally, the maximum LTV ratio is usually lower for rental property, which means you can take less cash out when you finance. For a cash out refinance of a one unit rental property, the maximum LTV ratio is usually 75% and the LTV limit for a two-to-four unit property is typically 70%. The good news is that if you are getting a mortgage on a property you own outright, the LTV ratio is less of a concern and you can still access a significant amount of equity in the property.
The table below shows current rental property mortgage rates and fees for leading lenders in your area. We recommend that you contact multiple lenders and compare mortgage proposals to find the best loan terms.
One alternative to a cash out refinance of a rental property is a home equity loan or home equity line of credit (HELOC). These options enable you to take cash out of your property in a potentially more cost-effective way.
Although the maximum proceeds from a home equity loan or HELOC are lower than for a refinance, your closing costs are lower and these options may offer more financial flexibility. For example, if you do not need a significant amount of proceeds right away, a HELOC enables you to draw down and repay the line an unlimited number of times during the draw period.
Because your payment is based on the outstanding loan balance, your financing costs may be lower. Plus, because your loan amount is lower with a home equity loan or HELOC, your total interest expense is usually lower as compared to a refinance.
The table below shows home equity loan and HELOC interest rates, closing costs and other program information. We recommend that you contact multiple lenders to learn more about the terms for a rental property home equity loan or HELOC.
Rental Property LTV Ratios: https://www.fanniemae.com/content/eligibility_information/eligibility-matrix.pdf