Loans For Investment Property Acquisitions

Loans For Investment Property Acquisitions
by Takara Alexis

The key to building wealth through investment property is to purchase several assets using borrowed funds at the best interest rates and terms. Lending institutions offer numerous loans for investment property purchases, each of which has its benefits that might be suitable for the borrower's needs.

In this type of loan, an investor will use equity in an existing property to purchase and build other assets to create greater wealth. As a rule, the value of home equity must be at least 2-% of the value of the intended land purchase. This loan allows an investor to pay off his house faster and build assets through discipline and money management.

A variable loan charges an interest rate which fluctuates or changes according to market conditions. This results in fluctuating values of loan repayment. The investor could choose between a Principal and Interest (P & I) or Interest Only (IO) repayment plan. Under the P & I option, the borrower will pay a portion of the principal and corresponding interest throughout the loan's term. An IO loan means that the borrower will only pay the corresponding interest charges for a specified time, after which the principal and remaining interest fees shall be paid. A variable rate loan is the choice of investors who foresee declining interest rates during the term of the loan.

This type of loan protects investors against interest rate increases. The interest rate is commonly fixed for the first couple of years also known as the fixed rate term. At the end of the fixed rate term, the loan will assume a standard variable rate loan. Investors who foresee raising interest rates will decide to lock in the prevailing interest rate under a fixed rate loan.

Lo Doc is a type of loan that is suitable for investors or self-employed borrowers who are qualified to obtain a loan but are unable to provide standard proof of income such as pay slips or income tax returns. This works just like the usual variable rate or fixed rate loans.

A credit line, also known as 'evergreen' loan, does not have a set term and provides the investor access to funds up to the maximum approved borrowing limit. This is useful when an investor has built a reasonable amount of home equity, which may be used to purchase other properties for additional investment.

Lenders may offer other variations of loans for investment property acquisitions, each of which may suit different borrowers according to their needs. A mortgage broker has access to the best deals and interest rates that match the needs and circumstances of an investor.