The interest rates on investment property mortgages dropped significantly however, Fannie Mae is now requiring up-front discount points to be paid on all loans. The discount points have always been included in Fannie Mae’s risk and pricing model, but until recently, those discount points could be avoided by charging the customer a slightly higher interest rate. In many cases, the higher rates made more sense for a client to go with because an extra discount point wouldn’t drop the rate very much. Not true in today’s market, two discount points right now can get your investment property interest rate as low as 5.625% (That’s almost 2% less the than the going investment property interest rate 2 months ago which averaged 7.5%).
In today’s market, clients aren’t given the option to take the higher rate. Some experts believe that Fannie Mae is doing this so they don’t have lenders charging higher rates right now and offering no cost refinances to their clients. A lender will lose a lot of money if a borrower doesn’t keep thier mortgage with their loan servicer for at least 12 months. If a client were to do a no cost loan today, and rates drop further next month, a borrower may be tempted to refinance again. Regardless of Fannie’s true motivation here, this option of higher rates offsetting the discount points is temporarily off the table.
Below is an example of investment property rates right now for a borrower with a 720 credit score that is purchasing a property for $250,000 and putting down 25%.
Current Pricing 2 Month’s Ago
5.625% – 2% Discount 6.25% – 2% Discount
6% – 1.5% Discount 6.75% – 1.5% Discount
6.375% -1% Discount 7% – 1% Discount
No Discount – Not Available 7.5% – No points
Notice both the lower current rates and also notice that the discount point previously didn’t buy you as much of a rate difference before as it does today (.25% before and .375%+ today).
In conclusion, the extra discount points may cost you if you don’t plan on holding your investment property very long but for those investors who will hold their properties for a while, now is a great time to be both purchasing and refinancing.
If you would like a spreadsheet sent to you with different loan options at different rates and discount points, please shoot me an email at rbonahoom@houseloan.com.
Happy investing!
Rob Mortgage Coach
952-808-2820
6 responses so far ↓
1 Interest Rates » Interest Rates for Investment Properties Drop | Investment … // Dec 23, 2008 at 1:01 am
[...] Read the rest of this great post here [...]
2 Work Arefaine // Feb 21, 2009 at 10:25 pm
Thanks for the info.
3 ameriloan // Dec 10, 2009 at 6:51 am
Thank’s for your good advice about investing!
4 seogene // Dec 17, 2009 at 5:16 pm
Mortgagee in possession sales are increasing. Interest rates have risen. Have you seen the recent articles highlighting the drop in property prices in major capital cities? Mortgagee in possession sales are increasing. Interest rates have been rising. And this has left many who bought at the top of the boom with negative equity in their home or investment property.
5 Consolidate Credit Card Debt // Jan 9, 2010 at 10:27 am
Good suggest for them who intend to invest some money.
6 investment mortgage rates « loan web // Jun 18, 2010 at 10:47 pm
[...] 13.Interest Rates for Investment Properties Drop | Investment Mortgage The interest rates on investment property mortgages dropped significantly however, Fannie Mae is now requiring up-front discount points to be paid on all loans. The discount points have always been included … Tags: Investment Mortgage Financing · Investment Property General · Mortgage Financing · Mortgage Rates… [...]
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