Today, an investor has several avenues and tools at his disposal to undertake systematic and profitable investments. If an investor is really keen on making an investment but does not possess the required income, there is an arrangement of investment financing or investment loans on which the investor can bank upon.

The significance of investment financing or loans for investments is recognized to the maximum in terms of real estate investments. The most important factor that an investor considers while applying for a property investment loan is the rate of interest or the loan rate. In fact, the mortgage rate ha become the fundamental determining factor when it comes to investment property loans.

Lending Basics:

Investment property loans refer to those loans that an investor takes in order to invest or purchase a property for investment purposes. This is done mainly for widening the capital base of the individual. Investors opt for loans for financing their real estate investments mainly to avoid locking their personal funds in the purchase. If they take a loan they can purchase a property without sacrificing greatly on their present income. The borrowers can repay the loan gradually by paying the monthly installments over a fixed period of time. The investors have several options to repay the loans. They can rent out the property for a fixed amount of rent and use that amount to pay the loan. Once the loan is repaid completely the investor can use the property for personal use or continue giving it on a rental basis.

Hence, it comes as no surprise that the rate at which the loan is available attains premier importance. It determines the amount that the investor would have to pay over and above the principal amount. Hence, several investors opt for a specific loan or a specific loan company only because they offer low interest rates. However, this itself is not enough and investors must follow a rationale while analyzing the interest rates.

Types of Investment Property Mortgage Rates:

There are different types of mortgage rates available for investors to invest in real estate. Each type of rate has its own unique features and specifications. Hence, individuals can choose the investment mortgages accordingly. The three main types of investment property mortgage rates are as follows:

1) Fixed Mortgage Rate: As the name suggests, the fixed rate mortgage refers to the mortgage that consists of a fixed amount of monthly payments or installments (Equated Monthly Installments EMIs) with a fixed interest rate. This rate of interest and EMI remain constant throughout the tenure of the loan. This implies that the investor has the pay the same amount of EMIs and interest irrespective of any market fluctuations. There are two sub-types of fixed mortgage rates, namely 30 year mortgage and 15 year mortgage. The fixed mortgage rate usually works in favor of the investor. However, people find it disadvantageous only when they have to pay the same interest rate even when the market rate of interest is low.

2) Adjustable-rate Mortgage (ARM): ARM is exactly contrary to fixed mortgage rates. In this type of mortgage, the rate fluctuates according to the market conditions. The ARMs are beneficial when the market rate of interest is low. However, the investor may also have to shell out more money if the market rate rises. These are slightly tricky and require the investor to be well aware of its fundamentals like adjustment periods, indexes and margins, ceilings, floors and caps.

3) Balloon Mortgage Rate: The balloon mortgage rate is also known as the reset mortgage. In this mortgage there is a specific amortization schedule with variable terms like 5-year or 7-year. The mortgage allows the investor to decide whether he is willing to repay the residual principal amount by the end of the term or reset the loan according to the present market rate of interest. This type of mortgage requires the investor to repay the entire amount by the end of the tenure. However, it provides the advantage of low EMIs.

Tips for Choosing the Right Rates:

With different types of investment mortgage rates available for real estate investors, it can become confusing for them to select a particular type of mortgage. Hence, the following tips can prove a rough guide for the investors to choose the right mortgage type with the right interest rate:

1) The fixed interest rates are usually the most sought after and the best suited for investors who plan to own their properties for the rest of their lives.

2) However, those investors who plan to sell the property within five years are advised to go for adjustable rate mortgages. These also suit the investors who would like to begin their repayment schedule with a lower rate of interest.

3) Also, if the investors expect a rise in income soon and are confident enough that they can repay the loan within five to seven years must opt for balloon mortgage rates.

4) The investors must make a careful analysis of their income and savings profile before zeroing on any specific type of interest.

Interest Innovations:

With the demand for loans increasing, the numbers of mortgage companies have also risen significantly. Hence, there is a stiff competition among the companies to get the maximum share of clients. For this, some of the loan companies have also initiated new schemes to attract the investors. One such scheme is that of introductory rate loans. In these types of loans, the companies offer the investors loans at low introductory rates. This implies that the investor must pay significantly lower rate of interest at the beginning of the repayment schedule. The low rates continue of a specific introductory period of a maximum of twelve months. After, this period ends, the investor must go back to the regular rate of interest that the lender offers. This introductory period is especially attractive for the investors. The lending company solely determines the length of the introductory period and the rate in this tenure and the investor must accept this rate and the time period.

These factors indicate the significance and complexity of the issue of mortgage rates. Hence, investors must take great care while choosing the right rate of interest.