How to Buy your 1st Investment Property – Step 4
Determining whether you should get a fixed rate or variable rate for your mortgage
There is no right or wrong answer here. This answer depends upon your risk tolerance and what you feel more comfortable with.
In simple terms, with a fixed rate mortgage, the interest rate on the mortgage that you are paying is fixed for a set period of time. As a result, the interest rate on the mortgage does not increase or decrease throughout the duration of the term. An average term that people will have for their mortgage is 5 years. It is important to note that the term is very different from the amortization.
With a variable rate mortgage, the interest rate on the mortgage can rise or fall throughout the duration of the mortgage term. These fluctuations can be unsettling for novice real estate investors. The fluctuations sometimes cause anxiety on the part of the investor, because they do not know what their exact payments are going to be on the mortgage. For example, with a variable rate mortgage, as the interest rate increases so too will the payment on the mortgage amount. This rise in price is often inconsequential if you have done your due diligence and have mitigated any potential risk to you with regards to the increase in price that you will be paying.
Get your pre-approval from your mortgage broker
There are a number of different terms that are used for the pre-approval. Another interchangeable term is the ‘pre-qualification’.
At the end of the day, whether you call it a pre-approval or pre-qualification, it all means the same thing.
What it means is that you have the go ahead from your mortgage broker to go out and start to look at potential rental properties.
As this point your mortgage broker would have examined many things. They would have looked at how much of a down payment you are putting down, how much income you earn, what your existing debt is, as well they would have reviewed your previous credit history. These are all variables that effect the financing of your future rental property.
Once all of these items have been reviewed by your mortgage broker, they will give you a price range in which you should begin looking in. In most cases, they will give you the potential mortgage amount that you should not exceed.