Interest rates for second homes and investment properties are going up. In the last couple of weeks, the big agencies, Fannie Mae and Freddie Mac, basically said that they don’t want to have more than 7% of their whole pool of loans to consist of second homes and investment properties. So, for example, if they bought a thousand loans, they don’t want more than 70 of those to be second homes or investment properties. They’re cutting it down by about half from where it was before.
What this really means is they don’t want more risk. It doesn’t take a rocket scientist to figure out what they’re afraid of. I mean, look at our market. The market was crazy at the beginning of this year and if properties start going back to the bank you can guess what order they’d go in. Investment properties first, followed by second homes. Primary homes are the last to go back to the bank because, well, you live there. These big agencies are looking to buckle down. We’re not saying anything terrible is going to happen, but this is one small indicator that the winds are picking up a tiny bit.
The other question you should be asking is “what does this mean for the banks who are giving you the loan?” After all, they have to go and sell the notes after you get your keys. With these changes by the big agencies, that note is going to be harder to sell. To counteract this, and to protect themselves, they’re going to be increasing their interest rates on you.
Let’s say you get a mortgage done by ABC Mortgage. Now, ABC Mortgage plans on selling to Frannie or Freddie. But now, ABC Mortgage isn’t able to count on Freddie or Fannie to buy that loan the same way they were before. Because of this, they metaphorically start to sweat a bit more and they need to have a backup plan, and part of that backup plan is to charge a bit more for that loan because it’s going to take them longer to find a buyer.
The exact interest rates you’re going to be paying on second homes and investment properties are going to vary based on your bank, but we’re seeing most banks have added on extra adjustments for these types of loans. Because of this move, we will probably see interest rates on second homes be about a half percent to a percent more. It’s not awful, but the change is there.
If you’re out there looking for a second home or an investment property, or someone’s quoted you, you should know that each bank is going to have different adjustments. We suggest shopping around a bit. Inquire about these rates. Or give us a ring (602-535-2171) and we’ll help you find the best deal.
Right now, about 80% of banks have increased their interest rates on second home and investment properties. One of the benefits with working with a broker like us is that we still know those banks out there where the interest rates haven’t gone up yet, at least when it comes to second homes. We don’t know how long it’ll last, but if you’re thinking about that second home, right now’s a good time to call.
If you have any questions about this or if you have any questions you’d like us to answer on our podcast, you can email your questions to email@example.com or give us a call at (602) 535-2171. Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.
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Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.
Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS #210917 and 1618695. Equal housing lender.BACK TO LIST