The mortgage rate in the headlines isn’t the rate you’ll get on a rental, and a quarter point sounds too small to matter until you see it in a month’s cash flow. Here is one house, run at every quarter point from 7% to 8.5%, and the three rates where its answer changes.
Why is the rate on a rental higher than the one in the news?
Because the average in the news comes from a different kind of loan. Take the 6.76% average from Freddie Mac’s weekly survey for September 10, 2026 (Freddie Mac). It tracks buyers with good or excellent credit who put 20% down on a one-unit home they’ll live in.
A loan on a rental you won’t live in carries an extra charge. When Freddie Mac buys a loan on an investment property, it bills the lender a one-time credit fee. Its fee schedule dated September 9, 2026 (Exhibit 19) sets that fee, on a purchase, at:
- 3.375% of the loan when you put down at least 20% but less than 25%. On a $200,000 loan, that’s $6,750.
- 2.125% of the loan when you put down at least 25% but less than 30%.
A lender can collect a one-time cost like that at closing or through your rate. The Consumer Financial Protection Bureau explains the trade: points lower your interest rate in exchange for paying more at closing, and lender credits lower your closing costs in exchange for a higher rate. One point is 1% of the loan. The CFPB also notes that some lenders say “points” for any upfront fee figured as a percentage of the loan, whether or not it lowers your rate, so ask what each point buys.
How much does each quarter point add to the payment?
About $34 a month on a $200,000, 30-year loan, and slightly more with each step: $33.75 going from 7% to 7.25%, and $34.70 going from 7.75% to 8%. That’s $405 to $416 a year for every quarter point.
What matters is what’s left after the payment.
What happens to a rental’s cash flow as rates rise?
It shrinks by that same $34 with each quarter point, and nothing else in the deal moves to make up for it. Here’s the house the rental calculator opens with: $250,000, bought with 20% down on a 30-year loan, renting for $2,750, with the calculator’s standard costs. Only the rate changes.
| 7% | 7.5% | 8% | 8.5% | |
|---|---|---|---|---|
| Rent | $2,750 | $2,750 | $2,750 | $2,750 |
| Empty weeks (5% of rent) | −$137 | −$137 | −$137 | −$137 |
| Property taxes and insurance | −$367 | −$367 | −$367 | −$367 |
| Repairs and replacements (10%) | −$275 | −$275 | −$275 | −$275 |
| Property management (8%) | −$220 | −$220 | −$220 | −$220 |
| Mortgage payment | −$1,331 | −$1,399 | −$1,468 | −$1,538 |
| Cash flow each month | +$420 | +$352 | +$283 | +$213 |
These are example figures, not a forecast for any market.
The house makes money at every one of those rates. What changes is the calculator’s verdict.
| Cash flow | Cash-on-cash return | Debt coverage (DSCR) | Verdict | |
|---|---|---|---|---|
| 7% | $420 | 8.8% | 1.32 | This deal works |
| 7.25% | $386 | 8.1% | 1.28 | This deal works |
| 7.5% | $352 | 7.4% | 1.25 | Cutting it close |
| 7.75% | $318 | 6.6% | 1.22 | Cutting it close |
| 8% | $283 | 5.9% | 1.19 | Cutting it close |
| 8.25% | $248 | 5.2% | 1.17 | Cutting it close |
| 8.5% | $213 | 4.4% | 1.14 | Cutting it close |
Cash-on-cash return is the year’s cash flow divided by the $57,500 you put in, the down payment plus closing costs. Debt coverage, which lenders call DSCR, is the rent left after empty weeks and running costs, divided by the loan payments. The calculator calls a rental strong when it has positive cash flow, earns at least 8% on your cash and covers its loan at least 1.25 times.
At what interest rate does a rental stop working?
For this house there are three lines, and they arrive in this order:
- 7.27%: the cash-on-cash return falls below 8%.
- 7.52%: debt coverage falls below 1.25.
- 9.97%: the cash flow reaches zero, and the house starts costing you money each month.
The calculator shows the last one in its “What breaks it” box: “This works if the interest rate stays at 9.97% or less.” That’s almost 3 points of room above 7%.
A thinner deal has less. Give this same house $2,334 in rent instead of $2,750 and it keeps $100 a month at 7%, but its cash flow runs out at about 7.73%, less than three quarter-point steps away.
What can you change besides the rate?
The price, the down payment or the rent. At 7.75%, this house keeps $318 a month. Here is what each would take to get back toward the $420 it made at 7%:
- Price: about $232,000 instead of $250,000. Getting back to an 8% cash-on-cash return takes about $241,000.
- Rent: about $2,883 instead of $2,750.
- Down payment: 25% down instead of 20% lifts the cash flow to $408, but ties up $70,000 of your cash instead of $57,500, so the return only reaches 7.0%. It does move the loan into Freddie Mac’s lower fee tier, 2.125% instead of 3.375%.
Each one has a cost. A lower price has to be negotiated, higher rent has to exist in your market, and more cash down is money you can’t keep in reserve.
How do you test your own deal against rates?
Get a written quote for the property as a rental, then run it twice.
- Put the quoted rate into the rental calculator and note the cash flow and the verdict.
- Add half a point and run it again.
- Read the “What breaks it” box to see how much rate the deal can take.
If you’re borrowing the down payment, count that payment too, because a HELOC can take most of a rental’s cash flow. For what the Fed’s September 16 decision changed and what it didn’t, see the news post.