Indianapolis · Member since 2026 · 1 post · 1 vote
Does anyone have tips for borrowing as interest rates rise? As I am looking for my first deal, I am apprehensive locking myself into a ~8% rate if/when the Fed raises rates in December. Does anyone have tips for getting a lower rate without buying points?
Clayton, good question to be asking before your first deal. A couple of things that might help.
Mortgage rates don't move one for one with the Fed. The Fed sets a short-term rate, while longer-term mortgage rates follow the bond market (the 10-year Treasury is a decent proxy) and often price in expected Fed moves ahead of time. So trying to time your lock around one Fed meeting usually isn't reliable.
Ways to get a better rate without paying points:
- Credit score. Pricing usually improves in tiers (740+, 760+ etc.), so paying card balances down before a lender pulls your credit can make a real difference.
- Down payment / LTV. Going from 80% to 75% LTV often gets better pricing on investment property loans.
- Loan structure. On DSCR loans, choosing a longer prepayment penalty (3 to 5 years) typically lowers the rate compared to no prepay. An ARM (5/6 or 7/6) can also start lower than a 30-year fixed if you expect to sell or refinance within that window.
- Cash flow. On DSCR loans, a stronger rent to payment ratio can get better pricing.
- Seller credits. Negotiating a seller credit to buy the rate down gets you a lower rate without it coming out of your pocket, within whatever concession limits the loan program allows.
- Shop it. Get quotes from a few lenders on the same day with the same scenario, and compare rate, points and fees together, not just the rate.
Most important, underwrite the deal at today's rate. If it only works at a lower rate, it's probably not the right deal. If it cash flows now and rates come down later, a refinance is just upside.
Rates don't move one-for-one with Fed announcements, so I wouldn't base the deal on guessing what happens in December. Ask lenders to price the same property and loan structure with no points, then compare the payment and total closing costs; seller credits may be another option if they fit the deal. Most important, underwrite the property at the payment you can get today and make sure it still works if you hold longer than expected. Happy to walk through it, give me a call (my number's in my signature below).
@Clayton Reichanadter, I wouldn't try to time rates on a first deal. Buy one that works at the current rate and treat any refinance later as a bonus, and if nothing pencils near 8%, that usually says more about the strategy or market than about the Fed. If sorting out which strategy fits a first deal would help, I'm open to it. Are you planning to live in the first property? Which strategy are you leaning toward for it?
One thing to note is the federal interest rate does not necessarily correlate to mortgage rates. The mortgage rates are based on the 10-year Treasury, and those are more driven by our overall government debt, how many bonds the government is selling, and who the buyers are at the end of the day.
Now, getting to whether you should buy or not, interest rates are not going to be heading down to 5% anytime soon. They most likely are going to rise over the next 6 months or stay flat. If a deal comes up, I would move on it if you think it's worth it. It also depends on the market, what the market is doing. There are a lot of avenues of real estate that people need to understand.
One thing you could do is see if the seller will buy down the interest rate for 2 years instead of giving a seller credit. This will keep your payments low for 2 years and then get back to an interest rate at that point in time, which could allow you to refinance. If you do a DSCR, typically there is a 5-year prepayment on that loan, and if you want it shorter, you will pay a higher rate.
ProAlpha Capital55 Reviews
7e investments53 Reviews