It's finally happening. Interest rates are actually rising. If you have been procrastinating on purchasing a rental property it is now costing you money. It's time to make a move!
Interest Rates Rise - Procrastination is Expensive
There has been talks of rising rates for a year, but the 10 year treasury note has barely moved. That is the rate banks use to derived their mortgage rates. This rate has finally moved higher, not a lot, but enough to kick up rates on mortgages.
The Cost of a Small Rate Rise
Below are examples from the mortgage portion of the ScaredyCatGuide Property Calculator:
Example Info: 175K Property with 20% Down = $140,000 Mortgage
This isn't a very large mortgage but we can see how just a small change can cost us. Also, a smaller down payment would amplify this cost impact further.
Looking back at the example:
- Rate of 4.5% costs $709.36 per month
- Rate of 4.875 costs $740.89 per month
Now $31.53 a month may not seem like a lot of money, but over the course of the mortgage that it's $11.351 out of your pocket.
That's $11,351 less cash flow you will received from your rental property from just a .375 increase in rates.
As rates rise it will become more difficult to find good cash flowing properties. The time to act is now!
If you enjoy my rental property investing tips, then you will love the book:
I walk you step-by-step through finding, buying and renting out a rental property. The book is your personal mentor!
Be sure to use the property calculator so you can run the numbers and “buy right”– my gift to you