What are the Different Investment Property Mortgage Rates?

Posted on: May 4, 2012

Categories: Buy, Commercial Building, Residential House

Author: Buy Fix and Profit (Guest)

If you are buying a property for profit and not as a primary residence, then you are buying an investment property. It can include those that you bought and improved in order to increase its value. You could then sell it or rent it out. There are a few things affecting investment property mortgage rates.

If you are getting a mortgage for a residential property, you need to show a proof of income from a job. An investor on the other hand, needs to show the income he expects to make from the rent. If you are planning to improve the property and sell it, you will have a much harder time securing a mortgage unless you can show a good source of funds to pay the monthly payment while waiting for the sale.

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There are three types of investment property mortgage and each has its own computation of interest rates. When deciding which is best for you, you have to consider your own circumstances.

1. Fixed rate mortgage

In a fixed rate mortgage, the interest rates are fixed up to the point that the mortgage is paid off. The advantage of this is that your mortgage becomes predictable through its lifetime. If you rent the property out, it will generally be profitable because rents usually rise with inflation.

2. Adjustable mortgage

With adjustable mortgage, the rates can be adjusted anytime by the lender. This is a lot riskier option and that is why it is usually offered when the rates at the time of the mortgage are a lot lower than any fixed rate.

3. Balloon mortgage

A balloon mortgage is the kind in which the monthly repayment is set as though it would last for 25 years but by the end of a shorter period, say 5 to 7 years, and the remaining balance will be fully paid at the end of the term. This is advantageous to those who will sell their property because they can always pay the remaining amount in cash.

These are the different kinds investment property mortgage rates, each with its advantages and disadvantages. If you think that your circumstances are better served by any of these, then you decide accordingly.

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