If you are trying to purchase a rental property and need to get a mortgage, you realize how important it is to get as low an interest rate as possible. The higher the rate, the more the property costs, which will cut into your profits. There are several ways to help you get the lowest interest rate possible.
High Credit Score, Low Debt
If you have good credit and a very low amount of debt, you can get a better interest rate. This sounds basic, but many people forget how important it is and how much money it can save you. Further, having cash reserves and a solid income on top of the credit score make it easy to get approved and get a lower rate.
Shop Around
You don’t have to get a mortgage with the same bank that holds your savings just because it’s the closest. It’s worth the thousands of dollars to look around for a slightly lower rate and take the time to get quotes from various banks and other lending companies.
Live in the Property
If you purchase a property as a rental, the interest rate will be automatically be higher than if you purchase it as an owner-occupied, and in order for a property to count as owner-occupied, you usually have to live in the house for six months. This means you could live for a few months in the house and move back, or rent out your old home and make the new property your residence. If you have the ability to move and you’re willing to live in the property, you can lower your interest rate by a percent or more.
Shorter Mortgage Term
If you opt for a 15-year mortgage instead of the traditional 30-year, you will automatically get a better interest rate. You will have higher payments, but the house will be paid off sooner. If you don’t want your money tied up in the house, or you want the rental income to fully cover the mortgage and expenses that come with owning a rental, this may not be an ideal choice for you, but if you’re looking for a lower interest rate, a shorter mortgage will certainly help.
Purchase Points
Buying down points is essentially a way to pay up-front to get a lower interest rate. Your lender can show you exactly how much it will cost to lower your rate ¼ point or more. A few thousand dollars spent now could help you save much more than that in the long run if you’re planning on holding onto the property long-term. If you might sell after a couple of years, though, it may not be worth it, so make sure you check the math before buying points.
Put Down More
Bigger down-payments significantly reduce the interest rate a lender will give you simply because you’re asking for less of their money and showing a stronger hand by putting in more of your own. This is bad if you want to keep more money liquid, but if you’re not planning on using that money for other big investments, using it to save money on interest could be very useful. This will work better than buying points if you’re not sure how long you will keep the property.
Depending on what you want from your rental and what you’re comfortable with, you can find what tactic works best for you to get the interest rate you want. No matter what, it’s always a good idea to compare lenders to one another as well as compare the different mortgage options so you can find the best mortgage with the best company and save your hard-earned cash.
– Kelly Larkin writes for real estate blogs. Go to buytolet.net to check out their buy to let mortgage rates.
