With a party change in the Presidency and perhaps also the Senate imminent, investors in real estate are planning ahead. One topic most want to gather data on is investment property mortgage rates in 2021. Most real estate used for rental property and commercial use is financed. Profit models and rate of return on rentals are closely tied to investment property mortgage rate changes.
The COVID-19 pandemic was just about gone when it suddenly turned on a dime. Whatever experts predicted this past summer based on the coronavirus being a small concern is now all obsolete. To gain some perspective on the investment property loan rates expected for the coming year, Mashvisor dug deep into what experts on the subject are predicting for 2021.
How Do Investment Property Mortgages Differ From Personal Property Loans?
Whenever we hear the term “mortgage rate,” it refers to the traditional super-long 30-plus year rate for a private owner’s single-family home. One thing that is important to know as a person new to the real estate business is that investment property mortgage rates are not the same as those for private residential loans. Nor are the financing rules related to down payments, refinancing, and loan duration. We could beat a dead horse here, but the basic fact is that investment property mortgage rates are about 20% to 30% higher than the rate for a 30-year fixed mortgage rate for a private residence. Keep this in mind as you read this forecast.
Current Investment Property Mortgage Rates
In order to look ahead to 2021 and draw a contrast to today’s investment property mortgage rates, we need to know where we are now. TheMortgageReports.com found that two weeks ago the national average was 3.125% to 3.375% (3.125 – 3.375% APR). NerdWallet.com sees very little change in the residential property mortgage rate spread. At the time of this writing, it reported that the average rate on a 30-year fixed-rate mortgage dropped three basis points, the average rate on a 15-year fixed-rate mortgage rose one basis point, and the average rate on a 5/1 ARM went up one basis point. Let’s call the average investment property mortgage rate about 3.2% right now. Amazingly-low.
Investment Property Mortgage Down Payments
These rates assume a high credit score of around 700 and no special circumstances such as a low down payment. Typical investment property mortgage down payments are 15-25% for smaller investors. Lending Tree says that for multifamily homes, most lenders will only lend 75% of the property’s appraised value. Which of course translates to a 25% downpayment. Note that the percentage is not what you paid, but what the home appraised at. The two are not always one and the same.
One popular house hack is to buy a multifamily investment property and reside in one of the units. Owner-occupied rentals allow an investor to take advantage of both lower interest rates and a lower downpayment requirement. However, you can only do this one at a time, and there are restrictions on how long you must make that property your legal residence.
US Housing Market 2021 Outlook
Given the 180-degree change in regulation philosophy President-elect Joe Biden brings following President Trump’s four years, changes to investment property mortgage rates should be expected. The conservative approach and the liberal approach to banking regulations are two sides of a coin. However, almost nobody in any position of power in the modern age is calling for higher rates on borrowing. With the government printing money by the metric ton, borrowing costs are not expected to rise dramatically.
Much of President-elect Biden’s housing policy revolves around three things. First, government injections of taxpayer money into an expansion of Section 8 housing. Joe Biden says he plans to expand the number of applicants who receive Section 8 support to quadruple. Second, Joe Biden plans a massive expansion of government-subsidized housing. Third, the new executive branch leader wants to make it much easier for select groups to purchase single-family homes with almost no money down, and artificially-low mortgage interest rates. It is hard to see how any of these three would hurt the chances of investment property mortgage rates staying at historic lows.
2021 Mortgage Rate Forecast – The Experts Weigh In
Mashvisor turned to experts in the mortgage industry to determine if rates would increase, remain about where they are now, or decrease in 2021. We were unable to find any expert predictions that rates would climb in any meaningful way.
The Mortgage Reports cites Fannie Mae in its prediction story that rates will fall. This bold prediction says that rates could fall by 1 point for conventional mortgages or roughly 25%. That means the percentage rate will decline by a quarter.
Housing Wire cites Mortgage Bankers Association Chief Economist Mike Fratantoni in saying that the rates could rise by as much as a basis point (about 10% in terms of mortgage interest rate).
Freddie Mac points to the federal reserve’s comments that rates for mortgages will remain unchanged through the end of the 2021 sales year. This forecast is based on current policy. However, we should note that a Biden administration could cause a shift here if it chose to do so. But why would it?
Nerdwallet says that “mortgage rates may slide even more.” However, the story then posts up a tiny fraction of a fraction declines as if they are meaningful. In our opinion, they are not.
Forbes is not hanging its hat on a doom and gloom economy for 2021. However, the publication does point out that a “double-dip” recession could drive rates lower than the historic lows from this past September. That’s a double maybe prediction, and would still be viewed as positive news from any borrower’s point of view.
In summary, commercial and investment property mortgage rates are low by any measure. They are low by historic standards, low even by modern standards, and not a single banker is standing in front of a willing news camera crew suggesting that anyone involved in the business of setting mortgage rates will raise them. With a pandemic and its resultant downturn in the economy, nobody wants to restrain lending. With a new President and Vice President just about to take office committed to expanding housing options, no sane politician is about to step in front of a hot microphone and declare a policy with a minimum of four years, and possibly 16, is wrong on this policy.
Real estate investors with the means to purchase more property would be wise to jump on the great investment property mortgage rates available now and through the foreseeable future. Start here to be signed up in moments and on your way to your next property acquisition.