Get into the real estate game by understanding a few basics about mortgages and how to make money with OPM (other people’s money)!

If you want to own a house and become a homeowner, you can read this short and sweet tutorial about mortgages. A mortgage is simply a loan to buy a piece of property or as I like to think about a real estate investment. That piece of property is considered collateral on the loan. Usually, these loans last anywhere from 15 to 30 years and even longer nowadays.

First off, allow me to clarify a couple of concepts regarding real estate loans here. There are two components in a mortgage payment: 1) principal and 2) interest (unless it is interest only). Principal is the original loan amount and interest in the money someone is charging you loaning you the principal.

Financial scientists on Wall Street have created every kind of mortgage loan option to suit any kind of customer’s needs. It would be helpful for you as a consumer to understand your goals with the piece of real estate that you are interested in. There is a mortgage for every kind of consumer need. You need to understand your goals for owning the property and how you plan to make money owning your house.

Now here is a simple but not absolute rule for real estate investing. If you are planning on holding your house for a short term duration (i.e. less than five years), look into a variable interest mortgage loan. These are usually “interest only” (IO) and you will eventually be paying back the mortgage principal later on down the road.  If you want to hold to own your property completely, a “P & I” (principal and interest in the mortgage payments), fixed interest rate mortgage is probably the way to go. By the way, there is also variable interest rate P & I (principal & interest) as well if you think rates will be going down during the time that you will be holding your real estate investment.

Take a couple of minutes to familiarize yourself on the current interest rate environment, especially for the type of mortgage loan you think suits your needs. The Federal Reserve is the central bank system in the U.S. The Federal Reserve regulates the interest rates here in the U.S. by making it less expensive to borrow money. When rates are low, people are scooping up real estate investments and if interest rates are high, people are bailing out of their investments.