Investment property refers to any real estate asset, which is Non-Owner Occupied. The key intent of such an investment is the rental income that is accrued from it, along with the appreciation in its value over a period of time. Those who possess the necessary funds often look for profitable investment properties. In order to cut down the initial expense, by lowering the down payment, people usually acquire an investment property mortgage for financing their purchase.
An investment property mortgage refers to a loan or lien on an investment property that has to be paid over a specified period of time. In essence, it’s a personal guarantee that you would repay the money you have borrowed to purchase your investment property. There are several types of investment property mortgages, each with its unique features, benefits and pitfalls.
Fixed-rate mortgage – This is the most prevalent mortgage type because the monthly payments are stable. The interest rate throughout the life of the mortgage is the same as that at the outset. The major benefits of a fixed-rate mortgage are inflation protection and a relatively low risk.
Adjustable-rate mortgage (ARM) – This type of investment property mortgage has variable interest rates and monthly payments throughout the life of the mortgage. This scheme is popular because it often starts with lower monthly payments and a lower interest rate. The interest rate, however, can change during the life of the mortgage, which means that your monthly payment would change subsequently. It is imperative that you are aware of the nuances of an adjustable-rate mortgage prior to applying for one.
Balloon/reset mortgage – This has monthly mortgage payments based on a 30-year amortization schedule (mortgage repayment schedule). In general, the borrower has an option to pay off the arrears or reset the mortgage at the end of a 5-year or 7-year term. Therefore, this investment property mortgage type offers the advantage of a low payment but the mortgage must be completely paid at the end of the specified term.
Investment property mortgage can be availed on several property types, such as an apartment, a condo, any commercial property, or a plot. It can be acquired from leading banks and financial institutions, which typically verify your credentials (income source, savings and credit score) prior to offering mortgage. Selecting an investment property mortgage is as crucial as selecting a property. Therefore, decide on what amount of interest and monthly payments you are capable to mete out, and then select a mortgage accordingly.
Copyright © 2006 Joel Teo. All rights reserved. (You may publish this article in its entirety with the following author's information with live links only.)
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Joel Teo writes on various financial topics relating to Ahwatukee Real Estate Investment. Signup for his free online Real Estate Investing newsletter today and gain access to the “Six Day Real Estate Investment Profits Course” now at http://www.realestateinvestment101.info/Ahwatukee.html
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