Why 30-Year Investment Property Mortgage Rates Shot Up

rental loan rates

If you’ve been seeking to refinance rental properties with a 30-year investment property mortgage recently, then you’re probably aware of how quickly rates have increased for those long-term financing options. Throughout 2020 and 2021, the long-term rental loan market saw record lows with interest rates getting down under 4% – and this was true even at the very end of 2021. But now, midway through the second quarter of 2022, minimum rates have already increased by over 2.5 points.

So, what gives? Why did 30-year mortgage rates increase so quickly? A lot of armchair economists point directly to actions of the Federal Reserve Bank, but the truth is a bit more complicated than that. Let’s take a look.

The Fed Vows to Combat Inflation

When the Trump administration moved to slash interest rates and provide economic stimulus payments directly to citizens in 2020, a lot of financial experts worried that pumping money into the economy would result in runaway inflation. As time has passed, inflation has reached 40-year highs, and now in 2022 the Fed is aggressively increasing interest rates in order to tamp it down. In the first few months of 2022, the Fed Funds Rate has increased from 0.25 to 1.00, which is a rather rapid increase.

However, the Fed Funds Rate only affects short-term interest rates for banks borrowing money to cover daily customer withdrawals. There is not a direct correlation between the Fed Funds Rate and consumer or investor mortgage rates. Logic would tell us that there are other factors affecting mortgage rates, then.

Unified Mortgage Backed Securities Take a Tumble

Toward the end of 2021, the market for Mortgage Backed Securities began to see decreasing prices, due in large part to the fact that inflation made investing in those securities less attractive. As fewer investment dollars have gone into this market, prices for MBS products have fallen, which in turn has caused lenders to increase interest rates on loans. Looking at a chart of 30-year UMBS data in recent months, there has been a significant drop in price for these securities, which has driven up interest rates accordingly.

What Will Happen to Rental Loan Interest Rates in 2022?

Currently, 30-year rental loan interest rates seem to be settling into the 6-8% range, which in the grand scheme is a return to normal – and still well below interest rates of the 80s and 90s. Given that interest rates have increased rapidly in conjunction with a rapid increase in home prices, many home buyers are getting priced out of the market. Given that there’s a supply shortage for homes in the United States, home prices have remained inflated – but as demand dries up, some experts predict that home prices will come back down as well.

If the Fed is able to get inflation under control, it would stand to reason that mortgage rate increases would slow, or even begin to reverse. For now though, inflation continues to be on the high end – until that trend reverses, we can expect mortgage rates to increase as we move further into 2022 and on to 2023.

How to Get the Best Investment Property Mortgage Rates Available

Given that interest rates have gone so high, a lot of real estate investors are looking for advice on how to get the best rates possible to leave room for positive cash flow and profits. This is where it really helps to have an established relationship with a private lender. At Pimlico Capital, we always keep our partners’ best interests in mind when discussing loan products. Whether you’ve worked with us before or are just hearing about us for the first time, we’ll always strive to find the best rate for the financing option that best suits your needs.

Looking to purchase or refinance an investment property soon? Head over to our online rate calculator for a free, no obligation quote, or speak with us directly by calling 410-855-4600.