Is 5.50% a good investor interest rate?

Question

I am purchasing my 2nd rental property "buy and hold" with conventional financing 20% down. I have very good credit score probably around 800 (i think). Do you think 5.50% is a good interest rate or should I shop around for a lower rate? Can investors get a better rate?

Thank you in advance for your advice.

James Syed · Answer

@Rhondalette W.

Welcome to BP.

With 720+ score, 5.5% is a little high considering 20% down conventional. You should be able to get 4% - 4.5% in today's interest rate market.

I have been searching (see my post, commercial loan) recently and have come across some lenders.

Go to a local banker and ask at least 5  or more banks to get the best results.

Hope it helps.

Kenneth LaVoie · Answer

It's a great rate if it's locked in. I'm paying 4.32% right now for 25% down / 20 year / locked in for 3 years at a time, 2% pt cap each reset, 6% pt lifetime cap. You say "conventional" which by definition would be 20-30 year locked in, no adjustments. If so, I'd call it a great rate.

Account Closed · Answer

Thats a great rate.   What about the other fees?

Carolyn L. · Answer

@Rhondalette W.  I agree with others that 5.5% seems very high. Have you plugged all your numbers into the rental analysis calculator tool?

Daniel Levine · Answer

always shop around...

Russell Brazil · Answer

I agree with @Upen Patel who is also in my local DC market, that 5.5% is very high. On a 30 year fixed with 20% down I typically pay between .5% and 1% higher than what the Freddie Mac advertised average 30 year rate is.  Right now the average is a 3.98% which means I expect to get a 4.48% on the low end and a 4.98% on the high end.

http://www.freddiemac.com/pmms/

James Kandasamy · Answer

Interest rate is just one part of the equation. Its a tree in a forest.  What is the amortization schedule? Downpayment requirement ? Is the rate fixed for 30 years or Adjustable rate? is it a first financing or refinancing terms. Is it based on "Good" credit score (720-740) ? Are they charging any points to get you that rate?

.Put it into a spreadsheet and see how much is your cash flow. After getting a cash flow, does it meet your investment criteria for this year. After that check for next 3-5 years or longer.

Based on my past 3-6 months experience, if you are just talking interest rate for 30 years fixed with 30 amortization and 20% down for a good credit score. That's a bad rate. You can get it at 5% rate easily if you shop around. Talk to a few mortgage broker and shop around. Be patient and get the best deals. The lending business is complicated in terms of numbers with many ways for lenders to make money. Its very competitive too as the economy is so strong and many investors are blindly jumping into RE.

James and Shanti

Benjamin Allen · Answer

I think it depends, are you cash flowing? If there's one thing I've learned cash is king in the real estate world. If you are making money in the deal then it's a fantastic deal. If you make money at 15 Or even 50% interest rate its a good deal. Don't get me wrong I could be very ignorant in what I say, but deal analysis is much more than "having a good interest rate"

David Chwaszczewski · Answer

Agree that is a great rate for 30yr conventional financing.  I Agree with rest on is there any other fees. points, closing costs?

Is 5.50% a good investor interest rate?

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