Identify Your Investment Objectives
Identify Your Investment Objectives
Loans are not a one-size-fits all solution. So many times, I see both borrowers and mortgage brokers chase rate and present programs that offer the lowest rate because it's easiest to sell. This doesn’t do you any good if the lowest rate program does not line up with your investment objectives or your investment horizon. In some cases, structuring the wrong loan can cost you a lot more than what you saved on rate.
In order for a lender to structure a loan that gives you the flexibility you need (i.e. prepayment penalties), you have to prioritize your hot buttons, identify your investment objectives and define your investment timeline.
Hot Buttons
Let your lender know what exactly is most important to you and rank them in order of priority. Typical hot buttons are:
Loan amount
Interest rate
Prepayment penalty
Interest-only period
Fixed rate term
Non-recourse / personal guarantee
Investment Objective and Time Horizon
How long do you plan to hold onto this property? How certain are you? Might you consider pulling cash out in years 3, 5, 7? When do you anticipate selling? These are all questions you should address with your lender so that he/she can work to structure a loan that is in-line with this timeframe and that provides you the flexibility to either sell or refinance to pull cash out with little to no prepayment penalty.
Written by Tony Talamas: Connect with me on LinkedIn
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