Mortgage rates are an incredibly volatile element that has a major impact on how much you spend when purchasing a new property. According to Freddie Mac, mortgage rates are affected by many external forces, which can cause them to get higher as the year progresses. Mortgage rates, among other factors, are something real estate investors need to put a heavy weight on when exploring investment opportunities.
This blog will discuss how mortgage rates can impact your real estate investments. We'll also cover some tips to keep in mind when researching properties so you can make educated purchases to grow your portfolio.
Understanding the Basics of Mortgage Rates
Mortgage rates may seem like this obscure concept when you consider purchasing a property. In a nutshell, mortgage rates are the interest charged on a property loan when buying real estate. Mortgage rates fall into two categories, including:
- Fixed
- Variable
Fixed mortgage rates stay the same throughout the entire lifespan of your loan. Variable mortgage rates change depending on the economic environment. Understanding the basics of mortgage rates can help you grasp the following:
- Long-term returns
- Investor behavior
- The cost of borrowing
Fixed-Rate Mortgages
There are benefits to choosing a fixed-rate mortgage for your investment property. These factors include:
- Same monthly payment
- Consistent mortgage rate
Variable-Rate Mortgages
There are some advantages to keep in mind if you're considering a variable-rate mortgage. Some pros of this type of mortgage include:
- Initial lower interest rate than other options
- Interest rates can lower or rise based on market conditions
The Importance of Mortgage Rates for Real Estate Investors
Mortgage rates have more of an impact on your monthly cost for your investment property. These costs play an important role in the cost of buying and being able to hold an investment property. High mortgage rates can have the following impact:
- Reduced cash flow
- Increased payments
- Potential property accumulation
Mortgage rates also affect your real estate investment returns. For example, a 2% increase in your mortgage rate can increase your monthly payment by hundreds of dollars.
Increased costs can reduce your overall returns, especially if you're focused on your cash flow. On the other hand, refinancing your property at a lower mortgage rate can improve your long-term return on investment (ROI). It can also enhance your cash flow.
A low mortgage rate environment may allow you more opportunities to pursue real estate properties. You might be more willing to take on more ambitious projects or look at different types of properties. Low rates may make it easier to secure financing for larger properties.
Connect With an Experienced Property Management and Investment Company
Understanding mortgage rates can be challenging. It can also be difficult to stay on top of mortgage rate trends and know when it's the right time to purchase a property. That's why you must work with a real estate company that understands your goals and current mortgage rates.
PMI NWI has experience working with real estate property investors in Merrillville. Our real estate team has strong relationships with property owners throughout the area, ensuring we let you know of potential opportunities as soon as they become available. Reach out to our office to schedule a consultation.
