Historically, the traditional method of saving and growing your funds, has always been a secure bank account with a guaranteed return. However, one of the alternative ways of expanding your bank account is making money while you are saving it – enter – real estate investing.
Buying real estate property is a great way to invest for the long haul because property value can increase over time. This is why the investment can pay off long term. However, few people pay the full price up front—it’s a huge undertaking. When you buy residential or commercial real estate, you’ll likely commit to a down payment and pay off the full price of the property over an extended period. The part you pay off is a mortgage.
Mortgage-Speak & Basics
So, let’s rewind a bit.
Your mortgage secures the real estate property as collateral, which you will pay off with interest. Once the loan is paid off, the borrower owns the property free and clear of any financial obligation to a financial institution. If the home buyer defaults on paying the mortgage, then the lender (usually a bank or other financial institution) can take possession of the property. This is also known as a foreclosure.
The total of your mortgage will be largely based on the cost of the property, so let’s start with the interest rate.
Mortgage Interest Rate
The interest rate on a mortgage loan is the cost per year to borrow money from a lender. Interest rates fluctuate every so often and are initially determined by these factors: your credit score and annual income; the amount of your down payment; the length of your mortgage loan.
The Upside to Your Interest Rate
You can claim a portion of your mortgage interest cost on your taxes. But how much mortgage interest is actually tax-deductible? Tax deductions on mortgage interest are capped at $1,000,000 plus a few restrictions.
The Tax Restrictions
A tax deduction can only apply to mortgage interest on your first and second home. In addition, the loan must be connected to your mortgage or home. If not, it’s considered a personal loan and therefore would not be tax-deductible.
Where to Get a Mortgage
Community Financial Institutions & Banks
These institutions do not require a bank account in order to obtain a mortgage loan. Online and mobile account management is offered, and the mortgage monthly payment can be made online or at the branch.
A credit union is an excellent choice if you are eligible to become a member of the credit union. A mortgage is more likely to be given at a lower interest rate than a bank with the same convenience of online account management.
Applicants with low credit scores or prior financial blemishes have a better chance at getting a mortgage loan from private lenders. The downside is that the interest rates are astonishingly higher than a major bank or credit union.
A VA mortgage loan is the most commonly available from a government agency. This is available to former or current military personnel and comes with two surprising benefits: A down payment is not required to purchase the property and neither is mortgage insurance. Mortgage insurance is usually required when the down payment on a property is less than 20% of the property value. It protects the lender in case the home owner can no longer make his or her monthly payments.
Estimate Your Mortgage
How? Online mortgage calculator. Yep, it’s that simple. They help determine your monthly payment, interest, down payment and thus the financial impact of your available mortgage options.
Looking to invest in your future and real estate?
We can help you find the right Community Bank or Credit Union for you.