How to calculate the mortgage payment on an investment property

The short answer

The mortgage payment on an investment property is calculated the same way as any fixed-rate mortgage: the loan amount, the rate, and the term give you principal and interest. What changes is the inputs. You put more down, the rate is usually higher, and the payment you have to cover is the full PITI, not just principal and interest.

Then there is the question a rental has to answer that your own home does not: does the rent pay for it? A lender may say yes at a 1.2 coverage ratio while the property still loses money once you count vacancy and repairs. The example below shows exactly that.

What is different about an investment property mortgage

Down payment. For a conventional investment purchase, Fannie Mae and Freddie Mac allow up to 85% loan-to-value on a one-unit property, so at least 15% down, and up to 75% on a 2- to 4-unit property, so at least 25% down. If you'll live in one unit of a 2- to 4-unit building, conventional rules can allow much less down. FHA, VA, DSCR and commercial loans use their own rules. Lenders can ask for more, and non-agency DSCR lenders commonly want 20% to 25% down.

Mortgage insurance. A conventional loan above 80% loan-to-value needs mortgage insurance under Fannie Mae's rules. If you put 15% down on a rental, that premium sits on top of the payment until it comes off.

Rate. Fannie Mae applies a loan-level price adjustment to every loan on an investment property, on top of any other adjustments. Lenders pass that through as a higher rate, points, or both. Do not plug the owner-occupied rate from a rate table into a rental's numbers.

The payment you qualify on. A conventional lender looks at your income and debts. A DSCR lender looks mainly at the rent against the full payment. Either way, the number that matters is PITI, or PITIA when there is an HOA.

The formula

Loan amount = purchase price − down payment.

Monthly principal and interest = loan × r ÷ (1 − (1 + r)^−n), where r is the annual rate divided by 12 and n is the number of monthly payments (360 for 30 years).

PITIA = principal and interest + yearly property tax ÷ 12 + yearly insurance ÷ 12 + monthly HOA, plus mortgage insurance if the loan has it.

Lender-style coverage = monthly rent ÷ PITIA. Your monthly cash flow = rent − vacancy − repairs and capital expenses − management − PITIA.

Example

Illustrative example. These are made-up numbers so the math is easy to follow. They are not a listing, a loan offer, or today's rate. A single-family rental costs $300,000 and should rent for $2,400 a month.

Loan. You put 25% down, $75,000, so the loan is $225,000. The sample investment rate is 7.25% on a 30-year fixed loan. Principal and interest come to $1,534.90 a month.

Full payment. Property tax is $3,600 a year, or $300 a month. A landlord policy is $1,500 a year, or $125 a month. There is no HOA. PITI is $1,534.90 + $300 + $125 = $1,959.90 a month.

Lender coverage. Rent of $2,400 divided by $1,959.90 is about 1.22. To reach 1.25, rent would have to be about $2,450. Many DSCR lenders would still look at this deal, often at a higher rate or with more down.

What you keep. Set aside 5% for vacancy ($120), 10% for repairs and capital expenses ($240), and 8% for management ($192). That is $552 a month. Cash flow is $2,400 − $1,959.90 − $552 = −$111.90 a month, about −$1,343 a year. The rent covers the mortgage on paper and the property still costs you money every month.

Break-even rent. With those three costs at 23% of rent, the rent has to reach $1,959.90 ÷ 0.77, about $2,545, before cash flow hits zero.

Cash to close. $75,000 down plus closing costs at 3% of the price, $9,000, is $84,000 before any reserves the lender asks you to keep in the bank.

Where the money goes in year one. Of the $18,418.80 in principal and interest you pay in the first twelve months, $16,241.08 is interest and only about $2,178 pays down the loan.

Two changes that move the numbers

15% down instead of 25%. The loan grows to $255,000 and principal and interest rise to $1,739.55. PITI is $2,164.55 before mortgage insurance, and coverage drops to about 1.11 before that premium is added. Cash to close falls to $54,000. You save $30,000 up front and pay for it every month.

A rate of 8% instead of 7.25%. On the $225,000 loan, principal and interest rise to $1,650.97, or $116.07 a month more. PITI becomes $2,075.97 and coverage falls to about 1.16. A three-quarter-point difference between two quotes is worth checking before you sign either one.

Common pitfalls

Using principal and interest as the payment. On this house, taxes and insurance add $425 a month. Leave them out and a money-losing rental looks like it makes $300 a month.

Treating lender coverage as profit. A 1.22 ratio means rent is 22% above PITI. It says nothing about vacancy, repairs, or management. Run your own cash flow after the lender's ratio.

Pricing insurance like a home you live in. A landlord policy is a different product. Get a real quote for the property before you count on a number.

Assuming taxes stay put. A sale can trigger a reassessment in many areas. Ask the county how the tax will be set after you buy, not what the seller paid last year.

Forgetting reserves. Many investment loans require months of payments in the bank after closing. That cash is not available for the down payment or repairs.

Run your own numbers

The free investment property mortgage calculator gives the principal-and-interest payment and total interest for the loan amount, rate, and term you type. Add your tax and insurance by hand as shown above, or open the full calculator for PITI, mortgage insurance, interest-only periods, and DSCR sizing.

To see whether the rent carries the loan, the DSCR loan calculator divides income by debt service, and the rental property calculator turns rent, expenses, and the loan into monthly cash flow and cash-on-cash return. None of these pages is a loan offer, a rate quote, or financial advice. Your lender's terms decide the real payment.

Sources

Fannie Mae, Eligibility Matrix (August 5, 2026), https://singlefamily.fanniemae.com/media/20786/display (accessed November 10, 2026). Maximum LTV, CLTV, and HCLTV for an investment property purchase: 85% for one unit and 75% for 2 to 4 units, fixed or adjustable rate.

Freddie Mac, Maximum LTV, TLTV, and HTLTV ratio requirements for conforming and super conforming mortgages, https://sf.freddiemac.com/general/maximum-ltv-tltv-htltv-ratio-requirements-for-conforming-and-super-conforming-mortgages (accessed November 10, 2026). Conventional investment purchase: 85% loan-to-value for one unit and 75% for 2 to 4 units.

Fannie Mae Selling Guide, B2-1.1-01 Occupancy Types (accessed October 27, 2026), https://selling-guide.fanniemae.com/sel/b2-1.1-01/occupancy-types. An investment property is owned but not occupied by the borrower, and a loan-level price adjustment applies to all loans secured by one.

Fannie Mae Selling Guide, B7-1-01 Provision of Mortgage Insurance (accessed October 27, 2026), https://selling-guide.fanniemae.com/sel/b7-1-01/provision-mortgage-insurance. Primary mortgage insurance is required on a conventional first mortgage with an LTV ratio above 80%, unless another approved credit enhancement is used.

Steps

1. Set the down payment and the loan amount

   Loan amount = purchase price minus your down payment. Investment loans usually need more down than a home you live in, so plan on at least 15% down for a one-unit conventional investment loan, or 25% for 2 to 4 units, unless you will live in one of those units or your lender uses different rules (FHA, VA, and most DSCR loans often want 20% to 25%).

2. Use an investment property rate

   Ask the lender for the rate on a non-owner-occupied loan. It is usually higher than the owner-occupied rate you see advertised.

3. Calculate principal and interest

   Run the loan amount, rate, and term through a standard amortizing payment formula or a mortgage calculator.

4. Add taxes, insurance, and HOA

   Divide the yearly property tax, landlord insurance premium, and any HOA dues by twelve and add them to principal and interest. That is PITI, or PITIA with HOA.

5. Compare the full payment with the rent

   Rent divided by PITIA is the coverage ratio many DSCR lenders use. Then subtract vacancy, repairs, and management to see what you actually keep.

6. Add up the cash to close

   Down payment plus closing costs, plus any reserves the lender wants in the bank after closing.

Questions