Choose the Best Home Mortgage for Your Real Estate Investments
Choosing the right home mortgage can be confusing, especially for new investors. Adjustable rate mortgages (ARMs), jumbos, fixed-rates... how does an investor make sure to choose the right loan? The answer isn't always easy. The choice you make depends on your personal and financial situation. It also depends on the one factor no one can predict: the way interest rates will change in the future.
Fixed-Rate
The benefit of a fixed-rate home mortgage is that monthly payments will be steady for the life of the loan. This makes budgeting and planning the rest of your business finances easier. And, if you plan to hold onto your investment house for a long time (more than five to seven years) a fixed-rate home loan may make the most sense.
The downside to fixed-rate home mortgage loans is the that there is a higher interest rate on the loan. And, if you sell your investment house before paying off the loan, the buyers may not be able to assume that loan.
Adjustable-Rate
An adjustable-rate mortgage, also known as an ARM, often are appealing to investors who want to maximize their monthly cash flow from tenants, or those who plan to only own the house a few years, because the initial interest rates are sometimes one or more percentage points lower than on fixed-rate home mortgages. This means lower monthly payments for the first few years of the loan.
Hybrids
A "Hybrid" mortgage, such as 5/1 ARM, charge a fixed interest rate for five years, then adjust at the end of the fifth year based on interest rates at that time. From then on, the loan adjusts annually. These hybrid loans are also available as 7/1 and 10/1 ARMs.
Another type of hybrid is a 5/25 loan, which is fixed for five years and then adjusts just once to another fixed rate for the remaining years. A 7/23 loan is also available from some lenders.
Since the initial rates on these loans will be lower than 30-year fixed rate home loans, they can be very appealing if you know you will sell your home before the loan starts adjusting. If you can save even half a percentage point on your interest rate, you may be able to save thousands of dollars over the life of your home mortgage loan.
