A 7 percent mortgage raises a small landlord's monthly payment on a $300,000 loan by roughly $560 versus a 4 percent loan — from about $1,432 to about $1,992 in principal and interest, per standard amortization arithmetic on a 30-year schedule — and closing that gap requires either about $135,000 more down payment (cutting the loan to restore the old payment) or about 18 percent higher rent, holding all else equal. The 30-year fixed rate spent most of 2024 between 6.5 and 7.25 percent, per Freddie Mac's Primary Mortgage Market Survey weekly data. This is a worked illustration of arithmetic, not investment advice; the assumptions are stated below and rent outcomes depend on local markets the example does not model.
What are the assumptions in the illustration?
A $375,000 duplex, 20 percent down ($75,000), financing $300,000 over 30 years. Operating costs — taxes, insurance, maintenance, management at 8 percent of rent, and an 8 percent vacancy allowance — are set at 35 percent of gross rent, a conventional assumption used in lender underwriting. Two interest cases: 4 percent and 7 percent, spanning the 2021 and 2024 rate environments, per Freddie Mac's survey history. Every figure below follows from these assumptions; changing the property or the cost ratio changes the arithmetic, not the direction.
What happens to the monthly payment and cash flow?
| Line | At 4% | At 7% |
|---|---|---|
| Principal & interest on $300,000 | $1,432 | $1,992 |
| Break-even gross rent (payment + 35% costs) | $2,203 | $3,065 |
| Cash flow at $2,400 rent | +$152 | –$510 |
The table shows the mechanism plainly: the payment rises $560, but break-even rent must rise about $860, because operating costs scale with rent — a landlord collecting more rent also pays more in management and vacancy allowance. A rate rise is not passed through one-for-one into the break-even rent; it is amplified by the cost load.
How much more down payment restores the old payment?
About $135,000. Reducing the loan from $300,000 to roughly $165,000 brings the 7 percent payment back near $1,100 — actually below the original — but requires total cash at closing of about $210,000 against the original $75,000, nearly tripling the equity check. Per Freddie Mac survey data, rates at the 2021 trough were near 2.7 percent; a reader who bought on those numbers faces this arithmetic only at refinancing, which is why the 2024-2026 refinance schedule — and the share of loans written at 4 percent or below that have not come due — is the number to watch in Federal Reserve financial-accounts data on mortgage vintages.
How much rent would it take instead?
About 18 percent more than the 4-percent break-even — $2,600 rather than $2,203 — to hold the same thin margin at 7 percent. Whether any market bears that is a local question the illustration does not answer. Nationally, asking-rent growth decelerated sharply from its 2021-2022 double-digit pace to low single digits by 2024, per Apartment List and Zillow observed-rent indices, which is the context point most rate coverage skips: the financing shock and the rent-growth slowdown arrived together, compressing small-landlord margins from both sides.
What are the actual options the math leaves?
Four, each with a number attached. Larger down payment — the $135,000 figure above. Higher rent — bounded by the local market, not the mortgage. House hacking or owner-occupancy — financing an owner-occupied property runs below investor rates, per the same Freddie Mac survey spread between primary-residence and investment pricing. Or passing on the purchase — the honest fourth option the arithmetic sometimes selects. What the example establishes: rate changes move break-even rents by more than the payment delta, because costs scale with rent. Where it stops: at rents and values in any specific market, which the assumptions here deliberately exclude.
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