6 Types of Investor Mortgages and What You Need to Know

A real estate investor mortgage is financing for a real estate project that will have defined returns for the investor. These are almost exclusively done by real estate developers who want to buy a piece of property and turn it into a revenue source. A good example of a real estate investor mortgage is when an investor wants to buy a house and flip the house for a profit. The investor mortgage is a good, short-term vehicle to make that project happen. There are six basic kinds of investor mortgages for developers to consider.

Fixed Rate

Fixed Rate Mortgage

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You will notice that many of the investor mortgages use the same terminology as residential home mortgages. A fixed rate investor mortgage is one that offers a stable interest rate that the developer can rely on. The one thing that makes these kinds of investor mortgages undesirable is that they tend to have higher interest rates and loan costs.

Variable Rate

Variable Rate Mortgage

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Once again, the investor mortgage variable rate loan works exactly like a standard variable rate mortgage in that the interest rate fluctuates based on changes in the financial markets. Developers can find it easier to get these loans, but the changes in interest rates make these loans very risky.

Balloon

Balloon Mortgage

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The interest rate on a balloon investor mortgage is based on a term that is longer than the actual loan. For example, a 15-year balloon investment mortgage may have interest based on a 30-year term. This is great for saving money on monthly payments, which is why these investor mortgages are popular with house flippers. But because the interest is basically put off until the end of the mortgage, the buyout costs can be extremely high.

No Money Down

No Money Down

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You may have seen this kind of mortgage advertised on a 30-minute infomercial at 2:00 am on a Wednesday. You actually can get an investor mortgage with no money down, but the trade-off could be an extremely high interest rate or a short term for repayment. Be very careful to understand the terms of a no money down investor mortgage before signing the agreement.

Interest Only

Interest Only Mortgage

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This is a special kind of investor mortgage that allows you to pay only the interest payments for the first part of the term. The number of months you can go with just paying interest and no principle varies by lender. Once again, house flippers love this kind of investor mortgage because the up-front investment is extremely low. But if the interest rates go up while the flipper is still holding the house, then that will cost him.

Too Good To Be True

Be Careful of Mortgages

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In the investor mortgage business, there are several types of mortgages that are lumped under the category of exotics. If it sounds too good to be true, then it is. These often start with extremely low-interest rates or no down payment required, but the buyout terms can be extremely high and not worth the investment.

Before you start investing in real estate, you need to understand the various types of investor mortgages available. Real estate developers always have options for financing, but it takes research to determine which options are the best.

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