This week, I’m going to talk about interest rates. This is a subject that is constantly being discussed everywhere right now, which affects anyone considering buying a home, whether or not it is an investment property. I actually think interest rates matter less when discussing investment properties than primary homes, as I will discuss below. Mortgage interest rates are always changing—so let’s talk about whether now is the time to lock in or wait it out!

Now, when we are talking about your primary residence, whether or not you can afford the payment is really the main thing to consider when deciding whether to lock in a rate. You can look at forecasts and choose to lock in if you think rates might go up, or hold off as long as possible if you think they will go down. It is always a bit of a gamble since no one has a crystal ball. As long as you are okay with the payment, you should commit.

A lot of people are not selling or buying new houses right now because they do not want to lose their historically low 2-3% interest rates. This includes us by the way. When we bought our house in 2018, we were thrilled with our 4.5% interest rate. However, like everyone else, we refinanced in 2019 to a much lower rate. Ken recently did the math, and moving to a house and increasing our loan amount by only 20% would double our monthly payment when rates were around 6.5%. 

I think it is important to note that 6-7% interest rates are not all that high historically. If you look at 30 year mortgage rates by the decade, the highest was in the 1980s when the AVERAGE rate was 12.7%. The only other decade when the average rate was below 6% was in the 2010s, after the 2008 recession. The one thing that will definitely bring down interest rates is a bad economy (cough global pandemic cough). 

When it comes to investment properties, the only thing that matters is that the rent exceeds the payment. As long as you are not losing money, and even sometimes if you are, an investment property is still going to make you money in the long run. Property in the United States tends to appreciate and the tenant is still paying down the mortgage for you. The big thing is Time in the Market matters more than Timing the Market. Your ownership interest will grow overtime and if interest rates do come down, you can always refinance to the lower rate, increasing your cash flow. If you wait for those historically low interest rates, you are going to miss out on the appreciation.