While the US economy may still be reeling from the COVID-19 pandemic, the US housing market has proved surprisingly resilient. And one of the factors that helped the market keep its ground is the near-record low interest rates. Due to the impact of the coronavirus, the federal government has cut interest rates. Tn turn, this has driven a spike in the demand for housing. Generally, the months of May and June are the real estate market’s peak selling season, and agents say it’s already a sellers’ market in many parts of the country as inventory remains tight. However, this is a good time for buyers as well because today’s lowest mortgage rates help stretch their budgets.
Whether you’re looking to buy a new home or a rental property, your mortgage is an important factor to keep in mind. Actually, getting a mortgage with a good interest rate is an essential part of successful real estate investing. A mortgage that comes at higher than the ideal rate will result in a longer repayment period, higher monthly expenditure, and an overall lower rate of return. This is why when looking to buy real estate, you need to pay attention to home loan rates and try to get a mortgage with a low rate that best suits you and your needs. Take the first step towards a mortgage today by taking a look at data of the current mortgage rates by state.
Related: Buying an Investment Property: Cash or Mortgage?
Current Mortgage Interest Rates in the US
As of Tuesday, May 26th of 2020, and according to a NerdWallet survey, the national average 30-year fixed mortgage rates rose four basis points to 3.33%. This is nine basis points lower than a week ago and 89 basis points lower than this time last year. Furthermore, the average 15-year fixed mortgage rates were unchanged at 2.72% and the average rate on the 5/1 ARM (Adjustable-Rate Mortgage) fell four basis points to 3.02%. Data shows that these are the lowest mortgage rates in history of NerdWallet’s survey.
Low mortgage rates today mean would-be home buyers and real estate investors can borrow more or save hundreds of dollars a year on mortgage payments. However, the cost of a home loan varies widely by location and personal factors like the type of property you want to buy, your credit score, and your down payment. Hence, home mortgage rates are higher in some than others.
To help you figure out the best places to buy a rental property where interest rates are favorable, we looked at the current interest rates in each state. According to NerdWallet’s data, the top five states with the highest mortgage rates are:
- New York: 4.59%
- Hawaii: 4.56%
- Alaska: 4.49%
- Maine: 3.83%
- Wyoming: 3.82%
These are the states where you may want to avoid when investing in real estate as the cost of getting a mortgage and buying a house is the highest in the country. On the other hand, the top five states with the lowest mortgage rates where you can find affordable homes for sale are:
- North Carolina: 3.25%
- Maryland: 3.35%
- Kansas: 3.35%
- Arkansas: 3.42%
- Nebraska: 3.45%
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Mortgage Interest Rates by State
Here’s the full list of today’s interest rates for each state in alphabetical order. You’ll find the lowest 30 year fixed mortgage rates as well as the lowest 15 year fixed mortgage rates.
|
State |
30 year fixed mortgage rates |
15 year fixed mortgage rates |
|
Alabama |
3.50% |
2.87% |
|
Alaska |
4.49% |
3.48% |
|
Arizona |
3.53% | 2.77% |
|
Arkansas |
3.42% |
2.85% |
|
California |
3.52% |
2.81% |
|
Colorado |
3.52% |
2.85% |
| Connecticut | 3.61% |
2.04% |
|
Delaware |
3.51% | 2.87% |
|
District of Columbia |
3.58% |
2.86% |
| Florida | 3.48% |
2.82% |
|
Georgia |
3.51% | 2.87% |
| Hawaii | 4.56% |
3.41% |
|
Idaho |
3.60% | 2.98% |
| Illinois | 3.64% |
2.76% |
|
Indiana |
3.60% | 2.94% |
| Iowa | 3.51% |
2.84% |
|
Kansas |
3.40% | 2.74% |
| Kentucky | 3.56% |
2.90% |
|
Louisiana |
3.55% | 2.88% |
| Maine | 3.83% |
3.20% |
|
Maryland |
3.35% | 2.82% |
| Massachusetts | 3.54% |
2.87% |
|
Michigan |
3.58% | 2.91% |
| Minnesota | 3.53% |
2.88% |
|
Mississippi |
3.54% | 2.91% |
| Missouri | 3.55% |
2.69% |
|
Montana |
3.69% | 2.93% |
| Nebraska | 3.45% |
2.76% |
|
Nevada |
3.66% | 2.98% |
| New Hampshire | 3.81% |
3.17% |
|
New Jersey |
3.62% | 2.88% |
| New Mexico | 3.69% |
3.02% |
|
New York |
4.59% | 3.65% |
| North Carolina | 3.25% |
2.73% |
|
North Dakota |
3.51% | 2.82% |
| Ohio | 3.53% |
2.85% |
|
Oklahoma |
3.57% | 2.91% |
| Oregon | 3.47% |
2.81% |
|
Pennsylvania |
3.56% | 2.86% |
| Rhode Island | 3.71% |
3.09% |
|
South Carolina |
3.49% | 2.86% |
| South Dakota | 3.71% |
3.08% |
|
Tennessee |
3.52% | 2.87% |
| Texas | 3.51% |
2.80% |
|
Utah |
3.67% | 3.04% |
| Vermont | 3.64% |
3.06% |
|
Virginia |
3.47% | 2.85% |
| Washington | 3.51% |
2.85% |
|
West Virginia |
3.79% | 3.17% |
| Wisconsin | 3.48% |
2.84% |
|
Wyoming |
3.82% |
3.13% |
Mortgage Interest Rates Forecast
In late February, there was uncertainty about how the coronavirus would affect the US economy. As a result of that uncertainty, mortgage rates fell and then, in March, swung wildly up and down amid market turmoil. So while buyers are benefiting from lowest mortgage rates today, some are wondering when rates will go back up. Up to now, there’s been no bounce back from the low even after the stock market improved – something that often happens when mortgage rates drop. Also, experts have reason to think interest rates will remain near historical lows (and possibly drop even lower).
So far, the Fed has succeeded in what it set out to do at the start of the COVID-19 pandemic: push mortgage rates down and keep them there. In March, the Fed poured as much money into the mortgage finance system as necessary “to support smooth market functioning” and bought more than half a trillion dollars’ worth of mortgage-backed securities since. By acting as a reliable buyer, the Fed assured mortgage lenders that they’ll have enough money to keep funding mortgages to consumers. In turn, this is keeping mortgage rates stable.
Needless to say, this tactic is working. As of early April and until now, home loan rates settled at low levels (between 3.25% and 3.5%) and remained there, according to NerdWallet’s survey. If the Fed wanted rates to be higher, it would simply start cutting back on its purchases of mortgage-backed securities. But that’s not happening anytime soon. In a recent announcement, the Fed indicated that they would keep investment property interest rates low for the next year or so, depending on the course of the COVID-19 pandemic and its economic consequences.
How to Find the Best Mortgage Rates
While experts forecast mortgage rates to remain low, investors still need to keep one thing in mind. That is: mortgage interest rates can change daily and vary widely depending on each borrower’s personal situation. Another thing to keep in mind is that even if you’re not investing in states with the lowest mortgage rates, you still have the opportunity to get a low rate. How? Here are some tips and tactics to help you find the best interest rates when buying a home or an investment property:
1) Consider Your Loan Program
The first step in getting the best mortgage rates is to decide what type of mortgage best suits your goals and budget. Every type of loan has its unique benefits and downsides to keep in mind. For example, you can tell from the table above that 15-year fixed mortgages rates are lower than the 30-year fixed mortgage rate. However, they come with larger monthly payments. Also, an adjustable-rate mortgage usually has a lower rate to start with, but you won’t be locked into that rate, meaning it can rise. If you want to invest in long-term rental properties, 30-year fixed-rate mortgages are generally the best investment loans to consider. Most real estate investors opt for these loans because payments are steady and predictable and they help pay less interest over time.
2) Shop Around
Regardless of where you live or plan to invest, you can help the lowest mortgage rates by simply shopping around and comparing offers from multiple lenders. While you might be tempted to use the lender who your real estate agent works with, this won’t guarantee that you’ll get the best mortgage rates. The more lenders you compare when shopping around, the more likely you’ll find the best mortgage lenders and get the lowest interest rate available. Remember, getting competitive rental property mortgage rates saves you hundreds of dollars over a year of mortgage payments (and thousands of dollars over the life of the loan). This will help reduce your property expenses and increase your cash flow. So yes – it definitely pays for a real estate investor to shop around for the best mortgage lenders.
3) Improve Your Credit Score
One of the biggest factors that affect your mortgage interest rate is your credit score. This simply tells mortgage lenders how responsible you are with your finances. Borrowers with lower credit scores are considered a higher risk for default, which is why they don’t get favorable rates. On the other hand, borrowers with higher credit scores always get the lowest mortgage rates because lenders consider them creditworthy. So before applying for a mortgage, it’s best to review and improve your credit score to get it in the best shape possible. Doing so is especially important these days seeing as lenders have stricter requirements for getting a mortgage due to the effects of coronavirus on the US economy and housing market.
Related: Coronavirus Impact: Is It Hard to Get a Mortgage Right Now?
4) Increase Your Down Payment
Even if you’ve found a bank with the lowest mortgage rates in your state or city, there are tactics you can do to make sure you’re getting the best interest rates. One of the most effective is making a larger down payment amount. This is because banks and mortgage lenders typically offer better rates when your loan-to-value ratio is lower. An increase in the down payment lowers the amount of money you borrow. In turn, this lowers the loan-to-value ratio as well as the lender’s risk. This is why lenders offer lower rates for those with a 20% down payment or more. For investors, we always recommend increasing the down payment not only because it’ll get you a lower home loan rate. This will also save you a lot of money down the road by lowering monthly payments for the life of the loan.
The Bottom Line
In the last months, the coronavirus pandemic has put entire nations on lockdown, slammed the stock market, and created a serious health situation worldwide. However, it also brought on the lowest mortgage rates of all time in the US. This is good news for real estate investors planning to buy a rental property with a loan. To better understand how your interest rate and down payment affects your investment’s profitability, use Mashvisor’s Rental Property Calculator, which can also be used as an Airbnb calculator. This tool comes with a built-in mortgage calculator which estimates how different mortgage rates and down payment amounts affect your property’s cash flow and cash on cash return. You can adjust the numbers until you find out which mortgage type, interest rate, and down payment amount allows you to get the highest return on investment.
Start out your 7-day free trial with Mashvisor now to give our tool a try.