Joel Teo writes on Ahwatukee Real Estate Investment. Learn more about Property Investment by signing up for his free Real Estate Investing Ezine
Investment property mortgage rate is one of the most decisive factors when choosing a mortgage. Typically, the lower the interest rate, the better the mortgage. But the assessment of viability of a mortgage really depends on the type of mortgage and other loan terms. It is crucial that you shop around a bit to find a mortgage and mortgage rate that suits your requirements. A mortgage can be obtained from reputable banks, financial institutions, credit unions, and even private mortgage brokers, who would find the best rate possible for you.
Investment property mortgage rate can be classified into three major types: fixed-rate, adjustable-rate and balloon or reset.
Fixed-rate mortgage is a mortgage in which your interest rate and monthly payments are fixed throughout the life of the mortgage. There are two major types of fixed-rate mortgages based on the duration of the mortgage - 30-year & 15-year. The major advantage of a fixed-rate mortgage is that the interest rate and the monthly payments don't increase with an increase in market rates. However, this can sometimes work against you, simply because the mortgage interest rate remains fixed even if the market rates are down.
Adjustable-rate mortgage (ARM) is a mortgage that has a variable investment property mortgage rate. ARMs usually start with a lower interest rate and lower monthly payments - this contributes to their wide popularity. However, it is imperative that you be aware of the specifics of an adjustable-rate mortgage, including the adjustment periods; indexes and margins; caps, ceilings and floors; and the number system.
Balloon or reset mortgage is based on a 30-year amortization schedule, with a 5-year or 7-year term. At the end of the term, you have an option to either pay off the remaining principal, or reset the mortgage at the current market rates. Therefore, you have the benefit of lower monthly payments, but you are required to repay the complete mortgage by the end of the specified term.
With several types available, you might be perplexed as to what type of investment property mortgage rate should you choose. The following few points will elucidate this aspect.
A fixed-rate mortgage is perhaps the best option if you plan to own the investment property for more than 5 years. But if you wish to sell the property earlier, or you want to start with a lower monthly payment, an adjustable-rate mortgage seems like an apt choice. And if you believe that your income will increase over time, and you can pay off the whole mortgage within 5 or 7 years, then you can go for a balloon or reset mortgage.
Copyright © 2006 Joel Teo. All rights reserved.
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