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Financing
Rental Property Mortgages?
How to Get Cheap Mortgage Rates PART 1
Just
like death and taxes, rental property mortgages are an inescapable part
of financing rental property and becoming a landlord. The good news
is that there are tried and tested ways for you to snag cheap mortgages
rates and shrink your loan amount. Find out what really works when it
comes to financing rental property cheaply.
There are 2 major ways to pay less for your rental property mortgages:
Lowering the interest rates of
your loan or paying less interest in total over the lifespan
of the
mortgage.
Choose the Right Type of Mortgage Loan for Lower Interest Rates
While mortgage
lenders have come up with many creative and colourful ways to repackage
their mortgage loans, most types of mortgages will still fall into
these 3 flavours: Fixed rate mortgage, adjustable rate mortgage and
convertible mortgage.
Depending on the current market interest
rates, choosing the right type of mortgage will heavily affect the cost
of your rental property loans.
As the name suggests, fixed rate mortgages are housing loans where
the interest rates remain the same throughout the entire loan duration.
If you are financing rental property during times when interest
rates are low (such as during a housing slump or economic recession),
fixed rate mortgages are a smart way to lock in those cheap mortgage
rates.
What if the market interest rates are sky high right now
but you spotted a profitable rental property that you must have? In
that case you should consider going for convertible mortgages instead.
For this
type of mortgage, your mortgage
rates will vary according to the market interest rates for the first
several years (usually 3 to 7 years) then you will have the choice to
convert it into a fixed rate cheap mortgage rates when the interest
rates are lower
and more affordable.
So when
should you go for a adjustable rate mortgage (ARM)? ARMs tend
to
be have lower interest rates for the first few years so this makes them
more attractive to short term rental property investors. Just keep your
eyes peeled for any ugly prepayment penalties that you may have to fork
out for switching mortgage lenders too soon.
If you are
paying for your rental property mortgage with income that is
dependent on market interest rates (such
as stocks or bonds), ARMs also allow you to match your mortgage costs
with your investment returns.
Select
the Duration of Your Rental Property Mortgages Carefully
The
duration of your mortgage loan also plays a crucial role in whether you
can score cheap mortgage rates. Depending on your
age, income and lending laws, the loan duration for financing rental
property can span from 10, 15,
20, 30 or even 40 years.
By gunning for rental property mortgages with a
longer duration, your mortgage payments every month will be
less but the
catch is that you will end up paying more interest overall.
For
example let's say that you want to take on a rental property mortgage
of
$200,000 at 8% interest rate. What is the difference between a 15 year
mortgage versus a 30 year mortgage?
Using our free
mortgage payment calculator,
you will find out a 15 year loan comes with a monthly mortgage payment
of $1,911.30 and you will end up paying your mortgage lender
$344,034.75. With a 30 year loan, your monthly payments will drop to
$1,467.53 but the total amount paid balloons to $528,310.49.
By
shortening your loan period to 15 years, you will enjoy total savings
of $184,275.64. However remember that it comes with a heavier monthly
burden so make sure that your rental income plus personal earnings is
able to cover it.
Are
you ready to discover more highly effective ways to shrink
your mortgage loans and score cheap mortgage rates?
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