What Factors Affect Interest Rates for Rental Properties?


Quick Answer

Factors that affect interest rates for rental properties include any factors that influence property value including location, size and amenities, as reported by Advance Property Management. Other factors that affect interest rates include loan terms, down payments, home prices and credit scores.

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Full Answer

Available cash flow can play a role in interest rates. As properties that have higher values can command higher rents, these can influence interest rates and vice versa. Location plays a big role, as homes that have easy access to shopping, parks and schools are usually worth more. The size of the home also affects rental value, as does the number of bedrooms and bathrooms; in these cases, more is usually better. Amenities can also boost value. Amenities that help bring in higher rents include modern appliances, garages and outdoor amenities such as sheds and fences.

There is also a variety of factors that affect interest rates for all types of property. Credit score is a major factor, as borrowers with higher credit scores are perceived as lower risk and more likely to pay back the loan on time, according to consumerfinance.gov.

Home price and down payments also play a role. Larger and smaller loans can both command higher interest rates. Higher down payments reduce the loan amount, which tends to bring down the interest rate. Lenders also tend to see clients who make high down payments as lower risk.

Loan terms play a role in interest rates. Shorter terms usually command lower interest rates, whereas longer terms often command higher rates.

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