Current Investment Property Interest Rates in 2025

When it comes to real estate investing, understanding how to leverage debt and the interest rates associated with investment property loans is crucial to maximizing profitability. While Investment property loans often have more flexible documentation requirements, they typically have higher interest rates than primary residence loans.

This is because lenders view investment properties as riskier since borrowers rely on rental income or property appreciation to pay off their loans, making them more susceptible to default during vacancies or market downturns. As a result, investment property mortgage rates can significantly impact the cost of borrowing, which in turn affects your monthly mortgage payments, cash flow, and overall return on investment.

Whether you’re considering the purchase of a single-family home in a desirable neighborhood to attract long-term tenants, a centrally located condo to maximize short-term rental income, or prime vacant land to develop a custom spec home for resale, securing a favorable loan starts with understanding the market, understanding the loan product, and how current mortgage rates can fluctuate. By adopting the right strategy and thorough preparation, real estate investors can secure property loans tailored to their financial goals and investment plans.

Factors Affecting Investment Property Interest Rates

Several key factors determine the interest rate you'll receive on an investment property loan. Keep in mind that not all factors affect all types of investment property loan programs in the same way. For example, some lenders and loan programs will put more emphasis on borrower-specific factors like income and credit score while others may focus more on property-specific factors like location and condition of the property.

Borrower-Specific Factors

Credit Score: Borrowers with higher credit scores are considered less risky by lenders, so they can often secure lower interest rates. Lower credit scores, may result in higher interest rates, increasing the overall cost of your loan. Real estate investors should focus on maintaining or improving their credit score to qualify for more favorable terms. Note that some lenders, such as private lenders, do not have a minimum credit score requirements, as long as the borrower has no recent bankruptcies or foreclosures.
Loan-To-Value (LTV) ratio: A higher LTV, where you borrow a larger percentage of the property's value, usually results in higher interest rates due to the increased risk for lenders. A larger down payment reduces the LTV, allowing you to potentially lock in lower interest rates. For investment properties, the down payment requirements are typically higher than those for a primary residence—often around 20-35%.
Debt-to-income (DTI) ratio: Lenders assess your DTI to make sure you can handle the additional debt of an investment property loan. The lower your DTI, the more likely you are to qualify for lower rates. Furthermore, the type of property purchase (single-family home, multi-family, or vacation home) can affect your rates, with certain property types considered riskier investments.
Borrower’s Financial Reserves: Financial reserves are a cushion of funds that reassure the lenders of the borrower’s ability to make monthly mortgage payments. Ample reserves indicate stability and lower risk, which can lead to better loan approval odds. Insufficient reserves might signal financial instability, increasing perceived risk to the lender.
Experience as an Investor: Experienced investors with a proven track record of successful real estate ventures are seen as lower risk by lenders, especially for complex investments like vacant land for development.

Property-Specific Factors

Property Type: The type of property being financed influences interest rates due to varying levels of risk. Single-family homes generally have lower rates due to stable demand. Condos or multi-family properties may have slightly higher rates as they can be more complex to manage. Fix-and-flip properties might also carry higher rates due to short-term risks.
Property Location: Location is critical in assessing risk. Properties in stable, high-demand markets often secure lower rates because they retain value better and are easier to rent or sell. In contrast, properties in volatile or declining areas pose higher risks to lenders, often resulting in increased rates to offset potential losses.
Property-Use: The intended use of the property affects rates. Long-term rental properties offer steady income streams and tend to secure lower rates. Short-term rentals or vacation properties may face higher rates due to irregular income patterns. Properties intended for quick resale, like flips, typically have the highest rates given their short-term risk.
Condition of Property: Properties in good condition are less risky investments because they require fewer immediate repairs and are more attractive to tenants or buyers. On the other hand, distressed properties needing significant repairs might pose challenges for borrowers to generate income or sell, leading to higher interest rates as a risk buffer.

Loan-Specific Factors

Loan Amount: Loan size significantly impacts interest rates. Conforming loans, which fall within federal limits, generally offer lower rates. Jumbo loans, exceeding those limits, often have higher rates due to increased risk. Large loan amounts also mean greater exposure for lenders, which can further influence the pricing of interest rates.
Loan Term: Shorter-term loans, such as bridge loans from a private lender, ranging from 12 to 36 months, typically come with higher interest rates due to their expedited approval process and increased risk profile. However, these loans provide flexibility for investors needing temporary financing. In contrast, longer-term loans, like 15- or 30-year fixed mortgages, may offer slightly lower rates due to their extended repayment periods and reduced turnover risk for lenders.
Interest Rate Type: Fixed-rate loans offer consistent payments over time but usually have higher rates than adjustable-rate mortgages (ARMs). ARMs may initially have lower rates, making them appealing for short-term investments, but they can adjust upwards, creating uncertainty. Borrowers need to balance the potential savings against long-term rate fluctuations.
Type of Loan: Different loan types come with varying interest rates. Conventional loans usually have competitive rates for qualified borrowers, while private loans or hard money loans often carry higher rates due to their flexibility and faster approval. Government-backed loans, like FHA or VA loans, may offer lower rates but have stricter qualifications.

Market Conditions

Overall Economic Climate: Economic factors like inflation, GDP growth, and employment rates influence interest rates. In a strong economy, interest rates may rise to curb inflation. Conversely, during economic slowdowns, rates often decrease to stimulate borrowing. These fluctuations affect the cost of financing investment properties.
Federal Reserve Policies: The Federal Reserve sets the federal funds rate, which directly impacts mortgage rates and other benchmarks like the Secured Overnight Financing Rate (SOFR). Since SOFR is widely used by private lenders, Fed rate changes can influence short-term borrowing costs for investment property loans, affecting the affordability and terms of financing.
Local Market Conditions: Regional factors, such as supply and demand for housing, employment opportunities, and population growth, play a role in setting rates. Lenders may charge higher rates in markets with declining property values or unstable economic conditions to mitigate risk, while stable markets may offer more competitive rates.
Demand for Investment Loans: High demand for investment property loans can drive up interest rates as lenders balance their risk exposure. In contrast, when demand is low, lenders may lower rates to attract more borrowers. Seasonal variations or market trends often influence this dynamic, affecting overall borrowing costs.

Lender-Specific Factors

Lender’s Risk Tolerance: Each lender has a unique approach to assessing risk. Conservative lenders may charge higher rates to ensure their investments are secure. Others, with a higher risk tolerance, might offer lower rates to attract borrowers. Understanding a lender’s criteria can help investors find the best financing options.
Private vs. Traditional Banks: Private lenders typically offer more flexible terms and faster approvals but at the cost of higher interest rates. Institutional lenders, like banks, often provide lower rates but may have stricter qualification requirements. The choice between these options depends on the borrower’s needs and urgency.
Loan Products Offered: Different lenders specialize in various loan products, which can influence rates. For example, some lenders focus on short-term bridge loans with higher rates, some provide competitive rates for long-term rental investments, while others offer both. Exploring lenders’ offerings can help investors identify the most suitable and cost-effective loan product.

Current Interest Rate Trends for Investment Properties

Current mortgage rates for investment properties tend to be higher than owner-occupied home mortgages. This is due to the additional risk lenders face when financing properties that are not primary residences. Investment property mortgage rates can fluctuate depending on the state of the economy, inflation rates, and federal interest rate policies.

During times of economic uncertainty or rising inflation, interest rates may increase to protect lenders from potential losses. As of this writing, investment property rates can range between 7.3% and 8% for conventional loans and 10-12% for private loans depending on various borrower qualifications and loan program.

Types of Investment Property Loans

When financing an investment property, you have several loan options available, each with different interest rates and terms:

Traditional Loans

Conventional Loans: Conventional loans are traditional loans provided by banks or lenders, not backed by the government. They typically require strong credit scores, larger down payments (at least 20%), and documented income. Investors use these for properties that conform to lending limits, benefiting from fixed or adjustable interest rates and long repayment terms.
Portfolio Loans: Portfolio loans are held by the lender instead of being sold to secondary markets, allowing for greater flexibility in terms and underwriting. These loans cater to investors who may not meet traditional criteria but have unique circumstances, such as purchasing multiple properties or non-standard investment types.
Jumbo Loans: Jumbo loans are for properties exceeding conforming loan limits, often used for high-value luxury homes. These loans have stricter qualification criteria, including high credit scores and substantial reserves, due to the increased risk associated with larger loan amounts.

Alternative Income Loans

DSCR Loans (Debt Service Coverage Ratio): DSCR loans are based on a property's income-generating potential rather than the borrower's personal income. They assess whether the rental income covers the loan's debt obligations, making them ideal for investors focusing on cash-flowing properties like rentals or multi-family units.
Bank Statement Loans: Designed for self-employed individuals or borrowers with irregular income, these loans rely on bank statements to verify income instead of W-2s or tax returns. They offer flexibility for entrepreneurs or investors whose financials may not fit traditional lending models but who have steady cash flow.

Short-Term Loans

Bridge Loans: Bridge loans provide short-term financing for 12-36 months, designed to "bridge" gaps between purchasing and securing long-term funding. They are ideal for investors looking to quickly acquire or renovate properties but come with higher interest rates due to their short duration and risk.
Fix-and-Flip Loans: These loans offer short-term funding for purchasing and renovating properties intended for quick resale. They typically cover acquisition and repair costs but come with higher rates and fees. Fix-and-flip loans are popular among investors aiming to profit from property appreciation through improvements.

Private Loans

Hard Money Loans: Hard money loans are asset-based, focusing on the property's value rather than the borrower’s creditworthiness. Offered by private lenders, they provide quick funding with flexible terms but come with higher interest rates and shorter repayment periods, ideal for investors needing fast capital.
Private Money Loans: Similar to hard money loans, private money loans are also focus on the quality of the asset, but they also consider the financial strength of the sponsor. These loans offer flexibility in underwriting and terms but often have higher rates and shorter durations, catering to unique investment opportunities or borrowers with non-traditional needs and urgent timelines.
Foreign National Loans: Tailored for non-resident investors, these loans provide financing for foreign nationals looking to purchase U.S. properties. They typically require higher down payments and may have stricter terms due to the perceived risk of lending to borrowers without U.S. credit histories.

Specialized Loans

Blanket Loans: Blanket loans cover multiple properties under one loan, simplifying management and offering scalability for portfolio investors. While efficient, they require strong financials and collateral, as defaulting on one property can jeopardize the entire portfolio.
Cash-Out Refinance Loans: These loans let investors access equity from an existing property to fund other ventures or improvements. By refinancing the property at its current market value, investors can use the cash for additional purchases or upgrades while adjusting loan terms.
Construction Loans: Construction loans provide funding for building new properties, with disbursements made in phases as the project progresses. These short-term loans require detailed plans and budgets, catering to developers and investors aiming to create custom or large-scale properties.
Land Loans: Land loans are designed for purchasing undeveloped land. These loans may have higher interest rates and shorter terms due to the speculative nature of land investments. They are commonly used by investors planning to develop or resell the land in the future.
Mezzanine Financing: Mezzanine financing blends debt and equity, typically used for large commercial real estate projects. Lenders often take equity stakes if the borrower defaults. This option is ideal for seasoned investors needing flexible capital for complex deals.

Choosing the right loan program is a critical step in achieving your real estate investment goals. With so many options available—from traditional mortgages and private lenders to specialized loans like bridge or land loans—investors can tailor their financing strategies to fit their unique needs.

How To Qualify for the Best Investment Property Interest Rates

To secure the best interest rates for your investment property mortgage loan, you’ll need to focus on improving your financial profile and preparing the necessary documentation:

Boost Your Credit Score: Lenders typically offer the lowest interest rates to borrowers with scores above 620. Check your credit report for any errors and pay down existing debts to improve your debt-to-income (DTI) ratio, as a lower DTI can make you more attractive to lenders.
Increase Your Down Payment: This will also impact the interest rate you receive. Putting down more than the minimum 20% required for most investment property loans can help you secure a lower rate, as it reduces the lender’s risk. Additionally, having substantial cash reserves on hand, equivalent to several months’ worth of mortgage payments, can increase your chances of qualifying for favorable terms. Lenders often view borrowers with reserves as more financially stable.
Shop Around For Lenders: Comparing lenders allows you to find the most competitive rates and terms. Banks, credit unions, and private lenders each have unique offerings, so take the time to evaluate your options. Shopping around can save you thousands over the life of a loan.
Demonstrate Strong Financial Reserves: Lenders want assurance that you can manage unexpected expenses or vacancies. Having 6-12 months of reserves to cover mortgage payments for all properties reassures lenders of your financial preparedness, making you a more attractive candidate for favorable loan terms.
Work with Private Lenders: Private lenders often offer more flexible terms and competitive rates, especially for high-value or unconventional investments. Building relationships with private lenders can provide access to loans tailored to your unique needs, often with faster approval than traditional financing.
Invest in Prime Locations: Properties in high-demand, stable markets are less risky for lenders, often leading to lower rates. Focus on areas with strong rental demand, population growth, and appreciation potential to enhance your loan terms and overall investment profitability.
Work with an Experienced Broker or Advisor: A knowledgeable broker or advisor can guide you through the loan process, negotiate favorable terms, and identify the best loan products for your situation. Their expertise ensures you avoid pitfalls and secure financing that aligns with your investment goals.

How To Compare Investment Property Loan Options

A key factor most investors use to compare lenders is the interest rate offered, but here a few other factors to consider to secure the best deal.

Closing Costs: Review closing costs, which include fees for appraisals, title insurance, and other administrative expenses. These can vary widely between lenders and significantly affect your upfront expenses.
Origination Fees: Compare origination fees charged for processing the loan. Some lenders may waive or discount these fees, while others might charge a percentage of the loan amount, adding to your costs.
Prepayment Penalties: Check whether lenders impose penalties for paying off the loan early. Prepayment flexibility is particularly important if you plan to refinance or sell the property before the loan term ends.
Approval Timeline: Compare the speed of the loan approval process. Private or hard money loans may provide faster funding, while traditional loans might take longer but offer better rates.
Reputation of the Lender: Research the lender to ensure they are reliable, transparent, and supportive during the loan process. A trustworthy lender can save you time and money in the long run. Additionally, ask them about their experience in your market or in the asset you are investing in.
Cash Flow Impact: Assess how the loan terms will affect your property’s cash flow. For example, interest-only loans might offer lower initial payments, improving short-term cash flow but increasing long-term costs.
Servicing and Support: Compare the level of customer service and ongoing support provided by lenders. Prompt responses, clear communication, and accessible representatives can make a significant difference throughout the loan term. Also confirm what happens after closing, does the lender service their own loans in-house or do they use a third-party servicer?

Refinancing Investment Properties: When It Makes Sense

Refinancing an investment property can be a smart move for real estate investors seeking better terms, but it’s important to weigh the benefits and costs carefully.

Lower Interest Rate: Refinancing to a lower interest rate reduces monthly payments, improving cash flow and overall profitability. This scenario is ideal when market rates have dropped significantly since the original loan was secured.
Switching to Fixed Rate: Refinancing from an adjustable-rate mortgage (ARM) to a fixed-rate loan provides stability and protects against future rate increases, making it worth considering during volatile rate environments.
Access Equity for Renovations: A cash-out refinance allows investors to tap into property equity to fund renovations, increasing the property’s value and rental income potential, especially for properties with significant appreciation.
Consolidating Debt: Refinancing multiple loans into one simplifies payments and may lower overall interest costs. This is beneficial for portfolio investors juggling several properties with varying loan terms.
Acquiring Funds for a New Investment: A cash-out refinance can provide liquidity for purchasing additional properties, helping investors expand their portfolios without relying on separate loans.
Existing Short-Term Loan is Maturing: As a short-term private loan matures, investors must decide whether to pay it off or refinance into a new loan. Refinancing into a long-term loan preserves liquidity and offers better rates, freeing up capital for reinvestment or unexpected expenses while maintaining financial flexibility and continued property ownership.

Your Partner in Investment Property Success

Securing the right financing for your investment property is a cornerstone of successful real estate investing. From understanding the various loan types—such as conventional, DSCR, and bridge loans—to comparing critical factors like interest rates, loan terms, and lender fees, being informed is key to making the best decisions for your portfolio. Evaluating loan programs, preparing a strong application, and strategically aligning your investment goals with the right financing options can significantly impact your bottom line.

Whether you’re an experienced investor or just starting, partnering with a lender that understands your needs can make all the difference. At Vaster, we specialize in providing flexible, tailored financing solutions for residential and investment properties. From competitive rates to expert guidance through the complexities of private lending, we’re here to help you secure the best terms for your next deal. Contact us today to learn how our team can support you in achieving your real estate investment goals.

Sources:
Current Investment Property Mortgage Rates | Forbes Advisor

What Is Loan-To-Value (LTV) Ratio And How To Calculate It | Forbes Advisor

Average Closing Costs | Bankrate

Investment and rental property statistics 2024 | Bank Rate

Cash Reserves: What They Are and How They Work | Investopedia