Property Investment Mortgage

The word “mortgage” comes from the old French term ‘Dead Pledge’, meaning a pledge that dies either when the obligation is completed or when the property is taken in a foreclosure. Today it means a contract in which the lender accepts the transfer of an interest in property as a security for a debt. Looked at this way a mortgage is not a debt, but the lender’s security for the debt. The simplest way to think of a property investment mortgage is buying a house. A bank loans the buyer money and when the property is paid off the buyer becomes the owner. If buyer fails to make payments however the property goes to the bank.
It is when the discussion turns to the different kinds of property investment mortgages that there is often confusion. It makes it easier to understand that the basic meaning of mortgages never really changes only the loan terms are truly altered.

Property Investment Mortgage-Fixed Rate

Often considered the standard mortgage, this was for many years one of the few mortgage types that was open to the common investor. It has a 30-year fixed rate and after the investor secures a loan at the fixed rate it remains unchanged for life of the loan. At the end of the term the loan is considered completely paid off. This option is especially suited for the first time home buyer because it helps to build credit.

Property Investment Mortgage-Adjustable Rate Mortgage

Adjustable Rate Mortgages (ARMs) are a very common, but somewhat controversial variable interest rate property investment mortgage. Also known as an Adjustable Rate Mortgage for the Real Estate Investor, these mortgages have an initial fixed rate period followed by a variable period where rates change or reset to follow current interest rates. Most ARMs are quoted with some limit on how much the rate can reset in any given year, but not all of them have this. While this gives the investor an opportunity to take advantage of downward tilting interest rates, the opposite can be true as well. The housing crisis of 2008 was in part blamed on ARMs as many investors were exposed to the sudden increases in interest rates and their ARM loan reset too high for them to be able to make their monthly payments.

Property Investment Mortgage-Interest Only Mortgages

This is a popular choice among investors; especially in areas where rising property values make cash flow investments particularly tough. These mortgages allow the property investment mortgage investor to defer the principal payment for a predetermined period of time, most often from three to ten years. The borrower only pays interest during this time giving them time to build up the business or establish themselves before making the re-amortized payments to pay off the principal.

Property Investment Mortgages such as the Zero down and the Balloon work the same way. The principle is the same; the difference is in the loan itself, the type of interest rates, and how the payments are made.