100% loan-to-value (LTV) investment property loans allow real estate investors to purchase investment properties without a down payment. While attractive for requiring less capital upfront, these loans typically come with higher interest rates than lower LTV loans. There are several key factors that impact the interest rates investors can expect to pay on 100% LTV investment property loans.
The investor’s credit score and history are critical in determining interest rates
A strong credit profile with a high credit score (over 720) will be required to qualify for the lowest interest rates on 100% LTV investment loans. Lenders view borrowers with excellent credit as lower risk and will offer better rates. Investors with weaker credit may still qualify but will pay higher interest rates to compensate the lender for the additional risk.
Property type and location affect interest rate pricing
Certain property types like multifamily rentals are viewed as lower risk investments by lenders. These properties can often qualify for lower interest rates on 100% LTV loans because they generate steady rental income. Properties in economically strong locations also tend to qualify for better rates. Weaker locations or more volatile property types like hotels may pay higher rates.
Shorter loan terms have lower interest rates
Most 100% LTV investment property loans come in 5, 7, 10, 15, 20, and 30 year terms. Shorter term loans like 5/1 and 7/1 adjustable rate mortgages often have lower interest rates because the investment capital is committed for a shorter time period. Investors can benefit from lower short term rates and refinance when rates improve.
Interest rates fluctuate with broader economic conditions
When the overall economy is strong, interest rates tend to rise as borrowing and lending activity increases. During recessions and periods of uncertainty, rates fall as demand declines. Investors should consider prevailing rates when assessing financing options, and lock in favorable rates when available.
Lenders charge varying interest rates based on risk tolerance
Different lenders have unique perspectives on risk that influence the interest rates they offer. Comparison shopping is important, as one lender may offer 100% LTV financing at much better terms than another. Building relationships with lenders who understand an investor’s business can lead to better long-term rate pricing.
While 100% LTV investment property loans provide easier access to financing, investors must weigh the benefit of lower capital requirements against the higher interest rates charged. Careful credit management, researching lenders, and timing financing properly are key to obtaining the best interest rates possible.