Negative leverage means a rental's cap rate is below its loan constant, so borrowing lowers your cash return. Home Pros (Balint Holdings, LLC) ran the numbers on the October 8, 2026 reading: a 7.40% mortgage rate is an 8.31% loan constant. Any deal with a cap rate below that borrows at a loss.
Not financial, legal, or tax advice. The rate and yield figures come from the FRED series and the Freddie Mac survey read on October 12, 2026. The rental examples are illustrations built on stated assumptions, not Home Pros deal results. Confirm loan terms with your lender.
How far have mortgage rates moved since October 2025?
Quickly and in one direction. The Freddie Mac survey average for a 30-year fixed loan, published on FRED as MORTGAGE30US, stood at 6.30% on October 9, 2025. By September 3, 2026 it was 6.71%. It then climbed to 6.95% on September 17, 7.03% on September 24, 7.28% on October 1, and 7.40% on October 8, 2026.
Context matters here. The 7.40% reading is the highest weekly figure since November 16, 2023, when the series printed 7.44%. The series peaked at 7.79% on October 26, 2023 and bottomed at 2.65% on January 7, 2021. An investor who bought in 2021 locked a loan constant near 4.8%. Today's loan constant is nearly three and a half points higher.
The 10-year Treasury moved the same way. FRED's DGS10 series shows 5.22% on October 8, 2026, against 4.13% on October 8, 2025. The mortgage rate sat 2.18 percentage points above the 10-year on the latest date.
| Date (FRED) | 30-year mortgage rate | Note |
|---|---|---|
| January 7, 2021 | 2.65% | Series low |
| October 26, 2023 | 7.79% | Series high |
| October 9, 2025 | 6.30% | One year ago |
| September 3, 2026 | 6.71% | Start of the climb |
| October 1, 2026 | 7.28% | Prior week |
| October 8, 2026 | 7.40% | Latest reading |
What is negative leverage and how do you test for it?
Leverage is positive when the money you borrow earns more than it costs. For a rental, the clean test compares two percentages. The cap rate is net operating income divided by price. The loan constant is the first-year mortgage payments divided by the loan amount, so it includes principal as well as interest. If the cap rate is above the loan constant, borrowing adds to your cash return. If it is below, borrowing subtracts from it.
Many investors compare the cap rate to the interest rate alone and conclude a deal works. That test is too generous. A 7.00% cap rate beats a 6.50% interest rate, but a 6.50% rate on a 30-year loan carries a 7.58% constant, so the same deal is under water on debt service. Always test against the constant.
The test needs three inputs: NOI, price, and the rate on your actual loan. Our guides on net operating income and cap rates by market cover the first two. For the third, get a written quote from your lender, because the national average is only a benchmark.
What loan constant does each mortgage rate create?
The constant depends on the rate and the amortization. The table below uses a 30-year fully amortizing loan with monthly payments. The 6.34% row is the average rate for the week of October 2, 2025, and the 7.40% row is the October 8, 2026 reading. The cap rate you need just to break even on leverage rises with each row.
| Mortgage rate | Annual loan constant | Monthly payment per $100,000 borrowed |
|---|---|---|
| 2.65% (Jan 2021 low) | 4.84% | $403 |
| 6.00% | 7.19% | $600 |
| 6.34% (Oct 2025) | 7.46% | $622 |
| 6.50% | 7.58% | $632 |
| 7.00% | 7.98% | $665 |
| 7.40% (Oct 8, 2026) | 8.31% | $692 |
| 7.79% (Oct 2023 high) | 8.63% | $719 |
Read the bold row against the market you buy in. If a house you are bidding on pencils to a 7% cap rate, the loan constant is 1.31 points above it. Every dollar borrowed at 7.40% costs 8.31 cents a year in payments and the house returns 7 cents on it.
What does 7.40% do to a $200,000 rental?
Here is an illustration with stated assumptions. A single-family rental costs $200,000, produces $14,000 of NOI (a 7.00% cap rate), and is bought with 25% down ($50,000) and a $150,000 30-year loan. Closing costs, reserves, and capital expenses are left out so that only the rate changes. These figures are a worked example, not Home Pros results.
| Metric | At 6.34% (Oct 2025) | At 7.40% (Oct 2026) |
|---|---|---|
| Monthly principal and interest | $932 | $1,039 |
| Annual debt service | $11,188 | $12,463 |
| Annual cash flow after debt | $2,812 | $1,537 |
| Cash-on-cash return on $50,000 | 5.62% | 3.07% |
| Debt service coverage ratio | 1.25 | 1.12 |
| Cap rate vs loan constant | 7.00% vs 7.46% | 7.00% vs 8.31% |
The deal was already slightly negative at 6.34%, and it is more negative now. Cash flow shrank by 45% from a rate move of 1.06 points. Coverage dropped below 1.25. A 1.25 coverage ratio is the target we use in this illustration, and many lenders set their own minimum, so confirm yours. For a full walkthrough of the return math, see our cash-on-cash return guide and the DSCR loan guide.
Another way to see it: the same monthly payment of about $932 supports a $150,000 loan at 6.34% but only about $134,660 at 7.40%. That is roughly $15,300 less loan for the same payment, so the buyer needs more cash or a lower price.
How much does the purchase price have to fall?
Hold the $14,000 NOI and the 75% loan-to-value fixed, and solve for the price that keeps coverage at 1.25. Maximum annual debt service is $14,000 divided by 1.25, or $11,200. At 7.40% that supports a loan of about $134,800, which is a price of about $179,700 at 75% loan-to-value. That is a 10.1% cut from $200,000. At that price the cap rate is 7.79%, and cash-on-cash returns to about 6.2%.
Break-even on leverage alone is lower. A price of about $168,500 pushes the cap rate to 8.31%, matching the loan constant. At 6.34% the same break-even price was about $187,700. The move cost sellers roughly $19,000 of price support on a $200,000 house.
| Target (NOI $14,000, 75% LTV, 7.40%) | Price | Cap rate | Change from $200,000 |
|---|---|---|---|
| Listed price | $200,000 | 7.00% | 0% |
| 1.25 coverage ratio | about $179,700 | 7.79% | about -10.1% |
| Cap rate equals loan constant | about $168,500 | 8.31% | about -15.8% |
This is the same arithmetic behind the maximum allowable offer formula. When financing costs rise, the number you can pay falls even if the house and the rent do not move. Wholesalers and sellers who anchor on last year's price will see buyers walk.
What should investors do at these rates?
Rebuild the underwriting on today's rate, then pick the lever you control. There are four.
- Pay less. The table above shows a 10% price cut restores coverage. Buying off market from motivated sellers is where that discount is realistic.
- Put more down. Lower leverage means less exposure to a high constant. The trade is a lower cash-on-cash return on a larger check.
- Pay cash. With no loan, the cap rate is the return. There is no constant to beat. See how Home Pros buyers use cash.
- Re-test the loan. Ask your lender for a written quote on the real product. DSCR, portfolio, and bridge loans price differently from the national average. Compare in our loan-to-cost vs loan-to-value guide.
Do not underwrite on a promised refinance. Rates were 6.30% a year ago and 7.40% today, which shows how fast the base moves in either direction. A deal that only works at a lower rate is a bet, not an underwrite. Our piece on how rising rates are reshaping buyer behavior covers what that means for demand.
If you buy houses to wholesale or hold, submit what you find at deal submit or browse the marketplace. Home Pros is a veteran-owned cash buyer based in San Antonio, founded in 2025, and we pay closing costs and buy as-is. Sellers in a rate-squeezed market can read our Texas page or request an offer.
Frequently asked questions
What is negative leverage in real estate?
Negative leverage means the property's cap rate is lower than the annual loan constant, which is the yearly mortgage payment divided by the loan amount. Borrowing then costs more than the building earns unlevered, so each extra borrowed dollar lowers the cash-on-cash return. At the October 8, 2026 mortgage rate of 7.40%, the loan constant on a 30-year loan is 8.31%.
What was the 30-year mortgage rate in October 2026?
The weekly Freddie Mac average, published on FRED, was 7.40% for October 8, 2026. A year earlier, on October 9, 2025, it was 6.30%. The 7.40% reading is the highest weekly figure since November 16, 2023, when it was 7.44%. The series peaked at 7.79% on October 26, 2023.
Is a deal dead if the cap rate is below the loan constant?
No, but the math changes. Cash flow can stay positive while leverage is negative, as the $200,000 example shows: $1,537 a year at 7.40%. The deal now depends on rent growth, the price you pay, or a lower rate later. Offer less, put more cash down, or pass. Do not count on a refinance you cannot underwrite today.
How much lower does the purchase price need to be?
In the example, holding a 1.25 debt service coverage ratio at 7.40% takes a price of about $179,700 instead of $200,000, a drop of roughly 10.1%. The same NOI of $14,000 then reads as a 7.79% cap rate. Your own lender sets the real coverage requirement, so confirm it before you make an offer.
Does the Freddie Mac rate match what an investor will pay?
Not exactly. The Freddie Mac survey is a national average and a benchmark, not a quote for your loan. Investor loans, DSCR loans, and hard money carry their own pricing, so get a written quote and run the loan constant on that rate. The table on this page lets you plug in any rate.
Where does the 10-year Treasury sit?
The 10-year Treasury constant maturity yield was 5.22% on October 8, 2026, versus 4.13% on October 8, 2025, per FRED. The gap between the mortgage rate and the 10-year was 2.18 percentage points on October 8, 2026. Mortgage rates tend to move with the 10-year, so watch both.
Sources
Rates and yields were read on October 12, 2026. The loan constant, cash flow, and price figures are our own arithmetic on those rates and the stated assumptions.
- FRED, 30-Year Fixed Rate Mortgage Average in the United States (MORTGAGE30US): weekly Freddie Mac survey readings used for every mortgage rate on this page.
- FRED, Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity (DGS10): 5.22% on October 8, 2026 and 4.13% on October 8, 2025.
- Freddie Mac, Primary Mortgage Market Survey: the publisher of the weekly mortgage rate series.
Not financial, legal, or tax advice. Rates change weekly and your lender's quote controls. The $200,000 rental is a worked example, not a Home Pros transaction.