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How
to Finance Investment Property Mortgages
- Cheap Mortgage Rates Guide PART 3
Since
financing
investment property mortgages is a big hurdle for any investment
property investor, learning how to score cheap mortgage
rates is critical if you want
your investment property to be profitable. Discover more tried and
tested ways of shrinking your investment property mortgages in this Part 3 of our Guide
to Financing Investment Property.
Have You Read
Part 1? If No, Click
for Part 1
of this Rental Property Mortgages Guide.
Why
it's a Smart Idea to Save up for a Larger Mortgage Down Payment
In the
olden days, you had to
cough up a sizable down payment (about
20%) before lenders were willing to grant you a mortgage loan.
These days you can finance investment property just by paying
a 3 to 5% down
payment.
However if your aim is cheap mortgage rates, then you should stick to
the traditional mortgage loan with
the standard 20% down payment.
By footing a larger chunk of your investment property's price tag, you
will get to cut down on your mortgage payments in a few powerful ways.
When you approach lenders with more ready cash for your payment, you
have more bargaining power and more lenders to choose pick. This
will all translate to cheap mortgage rates and a better deal for you.
If your down payment is too little, lenders will feel uneasy and may
require you to pay extra for private mortgage insurance. This is a type
of insurance that will protect your lenders from losses in case you
default on your mortgage payments. In most cases it doesn't make sense
to
pay more for your lender's protection.
One of the
biggest benefits
of rental property investing is that fact that your
property is an asset that you can use as a collateral for additional
loans or cash line for emergencies. With such a tiny down payment,
your property won't have enough equity for you to enjoy these
advantages until much later.
Make
Use of Offset
Mortgages to Pay Less Interest on Your Property Loans
When you
finance investment
property mortgages, offset
mortgages help you snag cheap mortgage rates by taking advantage of the
fact that the interest
rates for property loans tend to be higher than those of your savings
account.
When you apply for an offset mortgage, you will have a savings account
that is tied up with your mortgage account. You don't earn any interest
from the savings account - Instead the money saved into that account
will
be used to decrease the remaining balance of your investment property
mortgage.
For example
let's say you have
$200,000 mortgage to clear and you
deposit $20,000 into that linked savings account. What will happen is
that you will only have to pay interest on the remaining $180,000
instead of the full $200,000.
Going for an offset mortgage also allows you to enjoy tax benefits.
While the interest from a normal savings account is often taxable, you
won't have to pay a single cent in taxes for the money in your mortgage
savings
account.
While using offset mortgages to finance investment property is
already quite common in the United Kingdom
and Australia, they are also gaining popularity in the U.S. as well.
Of course there will always be a catch. When you finance investment
property with offset mortgages, the mortgage rates are usually 0.5 to
1.0% higher. On top of that,
the money that you leave in the linked savings account will be locked
in for a long time so offset mortgages are usually more suited for
property investors with more spare cash.
Read
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What are Your Top Tips for Cheap
Investment Property Mortgages?
Paying less when you finance investment property means having more profits for your own pockets. What are your tried and tested methods for getting cheap mortgage rates? Share your valuable experience with everyone here - We will love to hear your tips, comments and real life stories:
What Our Visitors Have to Share on Slashing Property Mortgages
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Refinance Your Investment Property Mortgages
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As a former bank manager, I see so many landlords and investors who clean forget about their investment property mortgages once they are approved for a ...
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