How Interest Rate Swings Affect Real Estate Investors

There’s probably not a real estate investor in the US right now who isn’t nervously watching financial events unfold. The impact of worldwide tariffs (not to mention all the other volatility) is causing knee-jerk reactions in the markets. This, of course, impacts interest rates. 

But how does this affect investors?

Well, the basic premise of interest rate swings is in response to 4 major factors:

• Rising inflation: Interest rates are usually increased to curb spending and regulate economic growth.
• Monetary policies: Central banks raise or lower the rates to stabilize borrowing.
• The economy: Times of growth encourage borrowing, which can lead to rate rises, and vice versa.
• National and global events: This is the biggie right now. War, market uncertainty, rising unemployment, the potential of recession… These are all current events that potentially lead to what can be dramatic shifts.

Both potential and actual changes in interest rates affect real estate investment strategies. When they rise, borrowing costs more and this can dampen the ardor of all but the richest (or most savvy) of investors. However, when they come down the attraction of cheaper borrowing means more people clamor to buy.

The real-world interest rate impact on investors in these two scenarios is that:

• Rising interest rates reduce demand for property. Prices, therefore, stabilize or drop, potentially leading to some bargain buys.
• Decreasing interest rates increases property demand. While it’s cheaper to borrow, prices often rise as more buyers are fighting to buy.

Another major factor for those with a rental property portfolio is that, when interest rates rise, more people need to rent. This is down to the knock-on effect of the higher borrowing. So, if you’re borrowing to fund a BRRRR (buy, rehab, rent, refinance, repeat) property, the higher rental yield, along with a potentially lower purchase price, can potentially negate some of the higher borrowing costs.

Real Estate Loan Interest Trends

Currently, interest rates remain high. While the peak of 7.04% in January 2025 has eased a little, Freddie Mac data shows rates stubbornly hovering in the 6%+ range. This is for regular, long-term borrowing for those financing a home to live in. Interest rates for real estate investment, such as from hard money lenders, are typically higher. At the beginning of Q2 in 2025, these can be anywhere from 7%-10%, or even up to 12%, depending on who you borrow from.

For landlords, the ROI on your investment will be impacted by the rental yield and the interest on your borrowing (as well as all the other associated costs).

Predicting real estate loan interest rate trends in today’s market is, ahem, somewhat interesting… With what amounts to a wildcard president in The White House, economists certainly have their work cut out. The majority (think expert forecasters, such as JP Morgan and the CME Group) seem to think rates will ease gradually over the remainder of 2025 and into 2026. However, all it would take is yet another federal curveball to kick off something different.

When it comes to following interest rates for real estate investments, the savvy entrepreneur or capitalist keeps abreast of real-time and potential changes. This is best combined with a dynamic approach, flexing strategies to accumulate wealth in a volatile landscape.

This could include:

• Adding flipping into your portfolio: Ideal when interest rates are low and borrowing at a manageable level.
• Long-term rental buy and hold: Ideal when rates climb. This focuses on maintaining cash flow, as opposed to short-term property appreciation. 
• Creative borrowing: Traditional lending is fast becoming somewhat of a dinosaur for many real estate investors. The rise of private money lenders, seller financing, and assumable mortgages all offer alternative methods of raising funds. They’re also generally easier to obtain, as opposed to the strict lending criteria of regular bank lending.

A flexible approach, consistent market monitoring, and at least a basic knowledge of the impact of interest rates on investors are the building blocks of success. This applies to both newbie real estate traders and those with multiple properties under their belt.

And, if you’re looking to fund your next (or first) project, then be sure to check out the competitive rates on offer at https://www.brrrr.com/