How To Get A Mortgage for Investment Property Purchase

October 21, 2011 by  Filed under: Loans 

Obtaining the best financing arrangement is the key to a profitable property investment. Investment properties can be profitable when the financing costs are lower than the income generated by their owners. A mortgage for investment property is a popular option for funding the acquisition of property. Interest rates are generally lower and payment terms are relatively favorable to the investor.

What is mortgage?

A mortgage refers to a loan that is secured by property which reduces the risk of the lender by serving as the source of payment should the borrower fail to repay the loan at the end of the loan term.

Features of mortgage

Interest rate: The interest is the amount that a lender charges a borrower for using its money. Generally, the interest rate on a mortgage for investment property is relatively lower than an unsecured loan because the collateral lowers the lender’s risk. Risk plays a crucial role in the costs of financing. Interest charges increase or reduce according to the banks rates which are linked with the central bank rates.

Principal: This is the amount actually borrowed which may be repaid in two ways: periodically together with the interest (also known as a P & I loan) or at the end of the loan term of an IO or “interest only” loan. In an IO loan, the interest is paid regularly during the “interest only” period. Frequent and regular payments of the principal and interest will lead to a shorter payment term compared to an IO loan.

Loan term: This refers to the number of years that a mortgagor must pay his loan to the lender. The loan must be settled in full at the end of the loan term. Mortgage loans can be repaid in 25 or 30 years. This is best suited for buyers with tight budgets. The length of time it takes a mortgagor to repay his loan will affect the interest costs of the mortgage. A longer period may have lower monthly or periodic repayments but carry higher interest rates.

A mortgage for investment property is a major expense that an investor must maintain all throughout the loan term. Lenders compete with one another by offering varying interest charges, mortgage fees, discounts and other attractive loan features that a mortgage broker would know. Wholesale lenders and institutional lenders may also prefer to deal with a mortgage broker who can obtain the best financing arrangement for a client’s needs. With numerous details to compare and negotiate in a mortgage loan, an investor’s best partner in this business is a mortgage broker.

You can find more information about the advantages of using a mortgage broker. Miriam Bronkhorst specializes in finding the right mortgage for your needs. Visit her at

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