Welcome to our investment property mortgage calculator, which calculates the maximum investment property mortgage you can afford and corresponding monthly mortgage payment. Our calculator is perfect for investors in both the United States and Canada. Importantly, our calculator includes the usual mortgage inputs and combines them with additional investment property inputs, such as rental income, to determine the maximum mortgage you can afford. Further, our additional guidelines below provide additional insight into specific aspects relevant to mortgages for investment properties. For instance, we outline how much higher mortgage rates for investment properties are as compared to primary and secondary residences. Further, we provide guidelines on the credit you can expect from a lender for any rental income you will generate from your investment property. Each of these calculator inputs are described in further detail below. With reference to these guidelines, you can generate more accurate calculations.
Curious about your expected return on investment of your investment property over the term of your mortgage? Try our real estate ROI calculator here.
How it Works
Complete the inputs below to determine the maximum investment property mortgage you can afford and corresponding monthly mortgage payment. Our investment property mortgage calculator permits a maximum debt-to-income ratio (i.e. the percentage of your gross monthly income that goes to paying your monthly debt payments) of 43% overall, which is the maximum amount many lenders will accept. As for rental income, we have assumed that your lender will give you credit for up to 70% of the fair market rents, although this may be slightly higher at 75% for borrowers in the United States. If you’re uncertain about the value of expected monthly fair market rents, try different scenarios to see how rental income impacts your maximum borrowing capacity and in turn the monthly mortgage payment. Start with no rental income, $1,000/month, $1,500/month and so on. Repeat this step with different monthly rental income scenarios. More detailed guidelines on investment property down payment requirements, interest rates and rental income are provided below.
The final calculation will show you how much you can afford, your monthly mortgage payment and monthly amortization schedule.
Investment Property Mortgage Calculator
Complete the following:
Investment Property Mortgage Guidelines
- Overview. Mortgages for investment properties will typically be associated with stricter lending criteria and fewer banks willing to lend you the money. Such lending terms will often include larger down payment requirements and higher interest rates than primary or secondary residences. The reason for this is the increased risk profile of an investment property as borrowers will be less likely to default on their primary or secondary residence versus an investment property that they don’t use.
- Investment property vs second home. By generating rental income from your property, lenders will likely view your property as an investment property as opposed to a second home or residence. If, however, you will only be renting out your home occasionally and otherwise primarily use it as a secondary residence, then lenders may view your property as a second home, which mortgage terms are typically more beneficial. In such a case, try our Second Home Mortgage Calculator instead.
- Down payment. Further to the above, investment property lenders will typically require larger down payments than mortgages for primary or secondary residence. As a general guideline, you should expect this to be in the range of between 20%-30% of the purchase price. From a lender’s perspective, the more money you have invested in the property, the less likely you are to default.
- Interest rates. While mortgage rates are typically higher for investment properties, attractive rates exist given the current low interest rate environment. A good rule of thumb is that you can expect to pay rates that are 0.50% and 0.75% higher for investment properties than you would for a primary residence. For reference, “second homes” will typically be 0.25% to 0.5% higher. As of July 2021, primary homeowners are paying between 2.875% – 3.0% in the United States (according to the posted rates of the “Big 4 Banks”) and between 2.34% – 2.65% in Canada (according to the posted rates of the “Big 5 Banks”). Using these rates, you can expect to pay between 3.625% to 3.75% in the US and between 3.09% to 3.40% in Canada for an investment property mortgage. Interest rates can differ from lender to lender so be sure to shop around for the best rate.
- Credit worthiness. In order to increase your chances of approval, a strong credit score and manageable debt-to-income ratio will be important. Further to the above, a maximum debt-to-income ratio of 43% overall is recommend. Briefly, your debt to income ratio is the percentage of your gross monthly income that goes to paying your monthly debt payments (total monthly debt payments divided by gross monthly income). So if you gross monthly income is $6,000 and you have an existing mortgage of $1,500/month and no other debts, your debt-to-income ratio is a respectable 25% ($1,500/$6,000). Without further income, you could be comfortable with a second mortgage at $1,080/month which brings your total debt-to-income ratio up to 43% overall ($1,500 + $1,080 / $6,000). Lastly, a credit score of 700 or more is where you can expect to have the largest pool of lenders and pay the lowest rates in both the United States and Canada.
- Rental income. When it comes to securing a mortgage for an investment property, generating rental income is a great way to increase your borrowing limit. In some cases, lenders may give you credit for up to 75% of the fair market rents (or 70% in Canada) based on an appraisal. Even at a lower limit, you’ll be able to borrow more than you would otherwise be able to without rental income.
Ways to Increase Your Borrowing Capacity
- Establish a strong credit profile. In order to ensure a high credit score, pay your bills and outstanding debts on time and keep your credit card debts low.
- Reduce your debt-to-income ratio. In order to do so, you’ll need to reduce your existing debts or increase your income. Also, if you have unused credit cards you may want to consider getting rid of them or reducing the limits. This is because a lender will consider any credit cards to be drawn to their full limit.
- Stabilize your employment. Maintain consistent employment and show stable income to reduce your risk of default.
- Keep a strong mortgage payment history. Investment property mortgage lenders will look at your mortgage payment history for your primary residence. As such, it’s important maintain a strong payment history.
Other Resources on Investment Properties
For further resources on buying, selling and owning a vacation home or investment property, click here.