Best Interest rates for 5 year Interest Only financing

Minneapolis, Minnesota
Creative Real Estate Financing
7moFollow

Best Interest rates for 5 year Interest Only financing

Daniel Domer
Investor · Prior Lake, MN · Member since 2016 · 34 posts · 6 votes

Hello,

We are going to be doing some deals, where we sell the home to our tenants after 5 years. We are in search of the lowest rates on these properties, on a 5 year interest only financing package. We have 25% + into the homes in terms of equity and ontime monthly payments. Currently, we can leverage line of credit promotional packages through some of our bank relationships. One is at 4.5% fixed 5 yr term, interest only. Another is around 6%. 

Issue is, we will run out of borrowing power after a few here, so starting to see what else is out there in terms of interest only, low rate. Can assume 830+ on credit score, no debt, and high net worth. All the properties are single family homes in MN.

Anyone doing anything similar out there, or know any banks willing to do this on investment properties ? Thanks in advance!

0Reply
112 views

Most Popular Reply

Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
7mo
Quote from @Daniel Domer:

Hello,

We are going to be doing some deals, where we sell the home to our tenants after 5 years. We are in search of the lowest rates on these properties, on a 5 year interest only financing package. We have 25% + into the homes in terms of equity and ontime monthly payments. Currently, we can leverage line of credit promotional packages through some of our bank relationships. One is at 4.5% fixed 5 yr term, interest only. Another is around 6%. 

Issue is, we will run out of borrowing power after a few here, so starting to see what else is out there in terms of interest only, low rate. Can assume 830+ on credit score, no debt, and high net worth. All the properties are single family homes in MN.

Anyone doing anything similar out there, or know any banks willing to do this on investment properties ? Thanks in advance!


if you are getting 4.5% - 6% take it. If you go DSCR at 5 year I/O and no prepay you are going to be well above those numbers..

7e investments53 Reviews
WebsiteView Page
1Reply
See this reply in the discussion

7 Replies

Jump to latestLatest
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    7mo
    Quote from @Daniel Domer:

    Hello,

    We are going to be doing some deals, where we sell the home to our tenants after 5 years. We are in search of the lowest rates on these properties, on a 5 year interest only financing package. We have 25% + into the homes in terms of equity and ontime monthly payments. Currently, we can leverage line of credit promotional packages through some of our bank relationships. One is at 4.5% fixed 5 yr term, interest only. Another is around 6%. 

    Issue is, we will run out of borrowing power after a few here, so starting to see what else is out there in terms of interest only, low rate. Can assume 830+ on credit score, no debt, and high net worth. All the properties are single family homes in MN.

    Anyone doing anything similar out there, or know any banks willing to do this on investment properties ? Thanks in advance!


    if you are getting 4.5% - 6% take it. If you go DSCR at 5 year I/O and no prepay you are going to be well above those numbers..

    7e investments53 Reviews
    WebsiteView Page
    1Reply
  • Bo SmithPro Member
    Hinton, WV · Member since 2026 · 1k+ posts · 373 votes
    7mo

    Smart structure for rent-to-own. When hitting lending limits, credit unions and regional MN banks often care more about deal cash flow than total exposure. Are you packaging these individually or exploring portfolio options?

    0Reply
  • Daniel Domer
    OP
    Investor · Prior Lake, MN · Member since 2016 · 34 posts · 6 votes
    7mo

    Hey Chris, yes we are taking those from credit lines. The issue is, we cannot scale after a few of these loans. So think if you have 700k in brokerage account, and they offer up to 600k loaned against it. Thats 2-3 deals only. So looking for scaling.

    0Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    7mo

    @Daniel Domer

    You won't find better than 4.5%. That is a very strong rate given the market right now. Once you are tapped out for DTI, DSCR can offer this loan type, but rates may be in the high 5's or low 6's right now with a 5yr PPP at 75LTV (assuming purchase not cash out to get here). Sounds like a local bank or credit union may be a good fit for you. They will often offer better rates and will look at your file globally versus just your personal income in many cases.

    Cheers!

    [email protected]
    Belsky Mortgage, LLC527 Reviews
    WebsiteView Page
    0Reply
  • Daniel Domer
    OP
    Investor · Prior Lake, MN · Member since 2016 · 34 posts · 6 votes
    7mo

    Nick, I'm not entirely familiar with the DSCR loan type, would that offer interest only for the 5 years? I mean, rate in the 5's but on interest only is doable.

    0Reply
    • Nick BelskyBusiness Member
      Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
      7mo
      Quote from @Daniel Domer:

      Nick, I'm not entirely familiar with the DSCR loan type, would that offer interest only for the 5 years? I mean, rate in the 5's but on interest only is doable.


      Potentially, in the high 5's. Would need to see the whole picture. Many DSCR loans do offer an interest only period of 5/7/10 years, they are an optional feature. Each has pricing adjustments and some are even ARMs, but still fixed rate during that intro period. DSCR is cash flow based versus driven by your personal income and DTI ratio. No employment nor income docs are needed for DSCR. They function just like conventional lending but often come with a Prepayment Penalty. If you intend to hold for 5 years before selling to the tenant, then a 3/5 year PPP should not pose an issue. PM me if you'd like to discuss further.

      Cheers!

      [email protected]
      Belsky Mortgage, LLC527 Reviews
      WebsiteView Page
      0Reply
  • Kyle Potswald
    Lender · Duluth, MN · Member since 2019 · 20 posts · 7 votes
    7mo

    Hey Dan,

    I'd find it challenging for a traditional lender to offer IO for a 5 year period using non owner occupied RE as collateral. The reason is if the market fluctuates they aren't protecting themself with reducing the LTV so essentially banks don't want you to get all the cashflow without reducing their risk, point being, i dont know any that go over 2-3 years for those reasons.

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free