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Mortgages for purchasing investment properties are significantly different from products for buying residential homes. The lender will provide you with a mortgage package based on the expected income from the investment property and not on your current personal income. You may go by these guidelines for securing a suitable package for your venture.
Most individuals buy investment properties for rental purposes. The lender will assess the rental property you intend to purchase to get an estimate of the rent you can expect to get. Additionally, he will take into consideration the amount of deposit you can lay down. Unlike residential properties, which require a deposit for up to 25% of the worth of the home, investment properties call for a deposit of not less than 40% of the property value. The lender will offer an amount for which you can pay the monthly instalments comfortably. The amount of the loan depends upon the interest rate as well.
A lender will offer information and guidance on his products. On the other hand, a mortgage broker offers information on an assortment of products. You may analyse the benefits and shortcomings of fixed rate, variable, standard variable rate, capped, tracker and other kinds of mortgages all at the same time to come to a decision. Moreover, a resourceful broker has connections with several lenders and has access to select products at competitive rates. An individual may view all the products available to the broker, and may select a suitable package. Some brokers charge a fee for the advice. However, most brokers receive commission from lenders for vending their products.
A variety of repayment methods are available for mortgages on investment properties. The general repayment mode consists of reimbursing the capital together with the interest accumulated over the mortgage period in regular instalments. In the “interest only” repayment policy, your monthly repayments involve only the interest on the principal balance and are thus considerably lower. However, you must devise a method to pay back the principal at some point. Since rental property owners do not need to pay tax on mortgage interests, this is a favoured option for most owners of investment properties. A borrower may opt for a third category in which he pays a part of the loan in the general repayment mode. He pays the balance on an interest only basis.