What are investment property interest rates in July 2024? That answer depends on several factors as interest rates can vary depending on your situation. The overall economy, personal credit and experience, type of loan, and property all matter. One major distinction is whether your property is a rental property or a property in need of rehab. Rental properties that are in good condition typically have lower rates. Types of loans for rentals include conventional loans or DSCR Loans. Interest rates for properties in need of rehab (for fix and flips or the BRRRR Method) are going to be higher. Here are the ranges of investment property interest rates to expect right now in July 2024:
Current Average Conventional Loan Interest Rate – 7.000%
Current Average DSCR Loan Interest Rate – 7.750%
Current Average Hard Money Loan Interest Rate – 10.900%
UPDATE July 2024: Mortgage Rates Drop Again!
Its hard to believe that 2024 is halfway over, but as we head into Q3 interest rates for investment property mortgage loans continue to drop across the board.
The US Five Year Treasury Yield – the key benchmark for DSCR Loans, dropped from a close of 4.52% as of May 31, 2024 to 4.33% as of June 28, 2024 – the last business day of the month and quarter. This drop of 19 basis points is substantial – a greater than 4% drop, although a smaller drop than the low of the month which occurred at the mid-point, just 4.22% as of the June 14, 2024 close.
Despite the minor drop – private lenders like Easy Street Capital are improving interest rates dramatically for real estate investors – as these experienced and professional real estate flippers and property owners continue to earn a track record of trust and performance. Easy Street improved rate pricing by a whopping 1.25% (125 basis points) on our Standard Series DSCR Loan Program – equivalent to approximately 0.375% or 37.5bps in lower rates! An example would be a rate of 7.25% quoted at the beginning of June would be reduced to 6.875% to start July!
In addition, rates for Hard Money Loans (bridge loans typically used for fix and flips) improved as well, with rates lowered to starting at 9.25%, even with increased leverage (up to 90%) and lowered minimum origination fees as part of our July kickoff supporting experienced flippers!
What Causes Mortgage Rates to Change – June 2024 Recap
June 2024 was a busy month for economic data releases that caused mortgage rates to go down. However current mortgage rates in July 2024 are not down directly from May, rates when up and down throughout the month!
Here are some of the highlights that caused the biggest change in rental property mortgage rates in June 2024:
Jobs Report – Friday June 7, 2024
The first big market-moving event in June 2024 was the Jobs Report, released early in the morning on June 7, 2024. This is the report showing unemployment rate and estimated change in nonfarm payrolls. The report showed an increase in jobs of 272,000, which was well higher than the 190,000 consensus Wall Street estimate.
Because the amount of added jobs came in significantly higher than estimates, which is the most important comparison, treasury bonds and mortgage bonds moved dramatically lower, as a higher than expected jobs number indicated to market traders a lower likelihood of the Federal Reserve cutting interest rates in the next few months. The 5-year treasury yield increased significantly, moving from 4.29% up to 4.46% by close, an extremely large move upwards of 17 basis points.
CPI Report and Federal Reserve Decision – Wednesday June 12, 2024
The big increase in rates thankfully didn’t last too long as the other most important report for mortgage rates – the CPI Report, which measures consumer price inflation – was released five days later on June 12, 2024. The report showed a headline increase of 3.3%, which was below expectations of 3.4%, and a 0% month over month change.
This was a very special Wednesday in the world of investment property interest rates however, as it not only had the CPI Report release but was also the day of the June Federal Reserve Meeting and Press Conference! The Federal reserve left interest rates unchanged for the seventh straight meeting however the new “dot plot” that was released was seen as “bearish,” as it showed a consensus projection of just one rate cut in 2024 (25 basis points) versus a projected 3 cuts as of the March 2024 meeting. After interest rates had fell dramatically in the morning post-CPI release, they climbed back up a bit, but overall the market reacted favorably – moving the five year treasury yield back down 9 basis points to 4.32%.
PPI Report – Thursday June 13, 2024
The market moving news didn’t slow down in the second week of June, as Thursday June 13, 2024 saw the release of the Producer Price Index (PPI) Report. This report shows producer inflation, another key figure for the Federal Reserve to look at in determining when to cut rates. A lower-than expected PPI reading would indicate a higher change of rate cuts and thus lower treasury yields and mortgage rates, including interest rates on rental properties.
Well, there was a big surprise in the PPI Reading for May – coming in at 2.2% year over year (vs. 2.5% expected) and -0.2% (deflation) month-over-month (vs. 0.1% expected). Yes, 0.3% below expectations may be a small number in most contexts but it is big when it comes to inflation metrics like PPI. This further inspired bond traders to see signs of inflation easing and the five year treasury dropped down to a 4.24% close, another 8 basis points and a total of 17 over the two-day period that saw three massive market-moving moments in a 48-hour period.
PCE Inflation Report – Friday June 28, 2024
The second half of June didn’t have many economic releases that had significant effect on the bond market or mortgage rates for rental properties (or real estate in general), as vacation season heated up and political election news dominated headlines. The PCE Inflation Report for May came in at the last business day of the month – coming in at 2.6% year over year for the “Headline” and “Core” metrics – both exactly in line with expectations. The five year treasury bond did in fact drift up four basis points in the day and ended the month at 4.33%.
Stay Tuned for July 2024 Updates
July 2024 – despite the Independence Day holiday sitting in the middle of the first week – has already seen continued ups and downs for mortgage rates – make sure you sign up for our newsletter, bookmark this page and follow the author of this piece on X to stay up to date on the cutting edge of the ups and downs of rates for rentals!
DSCR Loan Interest Rates Update June 2024 – DSCR Rate Drop!
As we head into the summer of 2024, many real estate investors that have been patiently waiting the last couple of years for DSCR Loans – often the preferred loan for rental properties – to come down. So far this year rental loan rates are relatively the same as the beginning of the year – however there have certainly been some ups and downs!
DSCR Rental Property Loan rates typically follow the US Five Year Treasury Yields – and are about 2.5% to 3% above what those government bonds are trading at in 2024 – the current year “spreads.”
All eyes continue to be on the Federal Reserve and their rate plans – whether the foreseeable future will see rates staying the same “higher for longer,” finally getting some relief “rate cuts” or the remote possibility of future increases “hikes”! Thus, the big moves in rates are generally tied to releases of economic data such as the monthly CPI Reports and monthly Jobs Reports – that provide the latest levels of inflation and unemployment. Reports that show inflation or unemployment as higher than expected tend to move DSCR loan rates up, while data showing a slowing economy or decelerating prices has the opposite effect, allowing DSCR Lenders to move mortgage rates down.
In May 2024 – the five year treasury yield dropped from 4.64% on the first of the month to 4.52% on May 31st – a decrease of 12 basis points – or approximately 1/8th of a percentage point. This is much better than the moves in April 2024, where the five year treasury yield increased by 28 basis points.
Quick Overview of the Market Moving Events of May:
- The rate drops from Aprils challenging increases started within the first week of May – as a Jobs Report released by the US Bureau of Labor Statistics on May 3rd reported much fewer new jobs than expected. The headlines showed that new nonfarm payrolls were up 175,000, much fewer than the expectation of 243,000. Many market experts believe that rate cuts will come only when the job market shows prolonged signs of stress, so traders reacted to this data by sending yields lower (and lenders in turn reduced mortgage rates, on both conventional loans and rental loans).
The first three days of May 2024 saw a big drop in yields on the benchmark 10-year US treasury bond.
- With all eyes on the continuing fight against inflation, the CPI Report on Wednesday May 15th (for April 2024) came in at a 0.3% month-over-month increase, slightly better and below the 0.4% Wall Street Expectation. Additionally, the year-over-year “headline” number came in at 3.4% (in line with expectations and below last month). This mildly below-expectation deceleration of inflation helped move rates lower
- Rates on mortgages unfortunately ticked up in the last week or so of May 2024 – not due to any distinct economic data report but more due to a confluence of other factors that affect rental loan rates – such as hawkish comments from Federal Reserve officials, weak demand at big new treasury auctions and minor economic reports showing some strength in economy and employment metrics.
However, despite the market moving only 12bps in the right direction for yields – Easy Street Capital – America’s leading DSCR Loan provider – was able to improve our rates on our most popular DSCR Loan program – our Signature Series – by the equivalent of 20 basis points – or a fifth of 1 percent! While this may seem small – it’s a pretty big drop – and active real estate investors in the space know every bit matters when working to make deals pencil!
Current Conventional Loan Interest Rates for Rental Properties
Interest rates for investment properties that use conventional loans are currently on average approximately 7.000%. Conventional Loans are loans that are underwritten based on the rules and guidance of government-sponsored agencies. These include Fannie Mae and Freddie Mac and have strict qualifying rules. They are based primarily on borrower credit and income rather than the investment property.
Conventional Loans for rental properties generally track the 10-Year Treasury Bond. Meaning, as treasury bond yields move up or down, the interest rates on conventional rental loans will follow. The “spread” refers to the difference in rates between the 10-year treasury and conventional loan mortgage rates. It is generally higher for conventional mortgage loans to reflect the higher risk of mortgages vs. government debt. Typically, the “spread” between the 10-year treasury yield is between 150 and 200 basis points (1.5% to 2.0%). However, in July 2024, the spread is elevated, currently just under 250 basis points!
We recommend visiting sites such as MortgageNewsDaily.com to track conventional loan mortgage rates.
Current DSCR Loan Interest Rates for Rental Properties
Interest rates for rental properties that use DSCR loans are currently on average approximately 7.750%. DSCR Loans are loans from private lenders that are based primarily on the investment property rather than personal credit. While the current average rate is around 7.5%, there is a larger range for DSCR loan rates. DSCR Lenders are originating loans as with rates as low as 5.99% and some as high as 10.00%.
DSCR Loan mortgage rates generally track to the 5-Year Treasury Bond. Similar to conventional loans, there will be a spread which reflects the higher risk of rental property mortgages. Since DSCR Loans are not subsidized by government-sponsored entities, this spread is generally higher than for conventional loans. Typically, the spread for DSCR Loan rates is between 300 and 400 basis points (3.0% to 4.0%).
However, there are multiple ways that borrowers can get the lowest DSCR Loan rates. The three biggest factors that determine DSCR loan mortgage rates are LTV, DSCR and Credit Score.
LTV refers to “Loan-To-Value” Ratio. It is the ratio of loan amount to the value of the rental property. Generally, the lower the LTV ratio, the lower the interest rate will be.
DSCR refers to “Debt-Service-Coverage-Ratio.” It is the ratio of rental income to expenses. The higher the DSCR, the lower the mortgage rate will be. To get the best DSCR loan rates in July 2024, the investment property should have a DSCR ratio over 1.25x.
Credit Score is also important in determining the interest rate on DSCR loans. Good credit can lower your DSCR Loan interest rate drastically. Someone with a credit score over 760 for example will likely have an interest rate 2-3% lower than someone with a 620 credit score!
In addition to LTV, DSCR and Credit Score, additional factors determine investment property interest rates when using a DSCR Loan. These additional factors include prepayment penalty provisions, loan purpose and interest-only structure options.
Generally, DSCR loans with higher and longer “prepayment penalties” will have lower rates. A classic DSCR loan prepayment structure is “5/4/3/2/1.”
5/4/3/2/1 refers to a 5% penalty if prepaid in year 1, 4% if prepaid in year 2, 3% if prepaid in year 3, 2% if prepaid in year 4 and 1% if prepaid in year 5. Then, assuming it’s a 30-year mortgage loan, any prepayment made in the last 25 years of the term would have no associated penalty. Typically, a loan with such a prepayment structure will be over 100bp lower in interest rate than an equivalent loan with no penalties!
DSCR Loan Buy Downs
A final method of getting the lowest interest rate on rental property with a DSCR Loan is to “buy down” the rate. This refers to paying additional fees at closing. This is a one-time cost that results in a lower interest rate over a 30-year term. These fees care also called “Closing Fees” or “Points.” Generally, for every additional “point” (1% fee) paid at closing, lowers the DSCR loan mortgage rate by 0.50%!
We recommend contacting a DSCR Loan specialist directly to track DSCR loan interest rates!
Current Hard Money Interest Rates for BRRRR and Fix and Flip Investors
Hard Money Loans are loans used for properties in need of a quick renovation. Typically, investors will take a hard money loan when embarking on a fix and flip project or when doing the BRRRR strategy. While these loans have higher interest rates, they are typically interest-only and have short duration (generally 3 to 9 months). Interest rates for investment properties with hard money loans are on average 10.900%.
While mortgage rates for rental properties secured by conventional or DSCR loans generally follow treasury yields plus a spread, this doesn’t apply to hard money loans. Hard Money Loans have more stable interest rates and don’t move as much. Hard Money rates are typically based on the lender offering the loans and the borrower’s experience.
Additionally, Hard Money lenders with nationwide platforms and long track records can generally offer the lowest interest rates. In contrast, hard money lenders with less of a track record and reputation can have hard money investment property rates as high as 18%.
Additionally, for highly experienced borrowers with a sterling track record of BRRRR or fix and flip deals get the lowest hard money loan rates. Current hard money loan interest rates for the most experienced flippers are as low as 8.9%!
We recommend contacting a Hard Money Loan specialist directly to track Hard Money loan interest rates!
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About the Author
- Short Term Rentals Investing Guide: Flagstaff, Arizona - July 2, 2024
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