Mortgage Options for Rental Properties

If you are in the market for a mortgage for a second home or a rental property, there are a variety of tools and mortgages available to you. Before you begin your search, you may want to consult a mortgage calculator to see the mortgage amount you can afford. In addition, understanding mortgage terms and benefits are important to make sure that you secure the right loan for your particular financial situation. The economy should also play a role in your decisions. Consider the following:

Interest only mortgage. When borrowers take this type of mortgage, they agree to pay the interest only for a set amount of time. No money is paid on the principal. After a time, borrowers have the option to convert the mortgage to a different type of mortgage such as a fixed rate mortgage.

Interest only mortgages are a good choice for those with little or no money down and for properties that are anticipated to increase in value rather than decrease. Many people use these loans to pay for a second home or a rental property. However, these loans are not without risk. If the property value decreases instead of increases, the loan may be difficult to convert to a standard mortgage, and the borrower will lose money when selling the property.

-Buy to let mortgages. Unlike interest only mortgages, buy to let mortgages typically require that the borrower have at least 25% to put down on the property. In addition, the amount available to borrow is based in part on how much income the property is expected to generate each month. (Ideally the property should generate 125% of the monthly loan payment.)

If the rental property increases in value, the borrower will be able to charge more for rent while still paying the same mortgage payment, thereby increasing his profits. However, like an interest only loan, if the property value declines, the borrower can find himself losing money because the property will command less rent and he may pay more out of pocket to meet the monthly loan payment. However, the majority of buy to let mortgages do result in a profit for the borrower.

If you are looking to enter the rental property market and are not sure which loan is right for you, carefully consider your financial situation, the economy, and whether the property is likely to increase or decrease in value in the upcoming years. Both interest only loans and buy to let mortgages carry their own set of unique benefits and risks. Make sure you are familiar and comfortable with both before signing the mortgage and making the commitment.

37 thoughts on “Mortgage Options for Rental Properties

  1. These options you have are very important…Some people are not familiar with this so thank you for the information provided here…

  2. Depending on your city there are going to be different websites, some websites are specifically dedicated to your city (depending on the size of your city) as well.

  3. Thanks for sharing with us this great ideas regarding with rental property market, by this we are able to know if we are abusing by the increase rate on our rentals…

  4. I will always remember this great ideas about rental properties… Thanks for sharing this with us especially that I am link with rental process…

  5. Thanks for sharing this mortgage calculator. I didn’t know there is something like this to calculate your mortgage amount. What are the factors to be considered when applying for a mortgage loan? Thanks again.

    -Brainey

  6. Actually, I disagree about getting an interest only loan. It’s a terrible loan if you can’t afford any more because you are paying much more in interest over the long run and setting yourself up for foreclosure when the payments balloon.
    However, if you have the money to pay mo than the minimum and be able to pay into the principle along with your monthly payments, it can be a great loan because the interest rate can be much lower up front. But you need to be able to pay more than the minimum and be disciplined enough to do it.

  7. I think in order to received a kind of improvement/ productive things you need to touch with the risk of decision of life for the reason that you can see what is the best thing to do to have a positive result, as I see regarding with our business runs away rental process of earning money…

  8. You report the income, then mark the box as Yes that the property was used more than 14 days for personal use, and read the instructions carefully to follow the worksheet. It will calculate the amount of expenses you’re allowed to claim.

  9. I agree with this. Mortgage is a very essential factor to consider on renting a a property. Thanks for sharing this.. Very informative! 🙂

  10. Great tips and insight about the knowledge in choosing mortgage options for rental properties… This ideas can surely bring a huge help for deciding the right decision…

  11. What you need to work out is how much interest can you earn on the money you have that you would pay off the mortgage with – if this interest is greater than the net ‘cost’ then there’s no point paying off the mortgage….

  12. I agree with you that before we enter a renting a property, we should consider the financial situation. And I must add that we should also consider the location of the property we want to rent.
    Thanks for this tips.

  13. we are planning to settle down and i’m happy to read and know the ideas how to start my family and know to budget my salary…thanks for the ideas you share…

  14. I know that this post bring a huge help to a reader like me to become more aware in the of rate of mortgage on our society…

  15. mortgage option will be great if you know how to deal with the buyer .mortgage is the way of makes you loan works. the bank wouldn’t lend you money unless you they could claim your home in the event of your default.

  16. I think craigslist.org is one of the easiest, although you would probably have to keep reposting every week in order to get the maximum amount of hits. Rentalads.com or findmyroof.com are other upcoming websites that are getting more popular as well. Depending on your city there are going to be different websites, some websites are specifically dedicated to your city (depending on the size of your city) as well.

  17. mortgage option will be great if you know how to deal with the buyer .mortgage is the way of makes you loan works. the bank wouldn’t lend you money unless you they could claim your home in the event of your default…….

  18. I think craigslist.org is one of the easiest, although you would probably have to keep reposting every week in order to get the maximum amount of hits. Rentalads.com or findmyroof.com are other upcoming websites that are getting more popular as well. Depending on your city there are going to be different websites, some websites are specifically dedicated to your city (depending on the size of your city) as well.

  19. Thanks for bringing with us this great information and ideas about mortgage, I know it will bring a huge help to me in dealing with property marketing…

  20. I do love to pin it with my friends, this ideas linked to mortgage will help me to aware with something…

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    the same old rehashed information. Fantastic read!
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