Who says borrowing money is a bad thing? Not all the time, says real estate analysts. In fact, if you’ll be utilizing the correct type of mortgage, borrowing can give you an advantage.

With the real estate market still on its recovery stages, it is best that one do Real Estate Analysis prior to investing in properties. And to create an effective Real Estate Analysis, one need not only analyze financing but the concepts of mortgage as well.

Mortgage, which is the property interest transfer to a lender as security for debt, should not be equated to debt but more of a lender’s security for debt. With mortgage, if the borrower satisfies the condition then the interest in land is returned to the borrower.

There are many types of mortgages and each type has corresponding consequences when used in real estate investments. The most popular mortgage types are fixed rate mortgage (FRM) and adjustable rate mortgage (ARM). In fixed rate mortgage, the interest rate remains the same during the whole duration of the loan. On the other hand, adjustable rate mortgage sees changes and adjustments in interest rate as the loan progresses.

Though the possibility of an interest rate decreasing is very tempting, investors are recommended to use fixed rate mortgage. In an adjustable rate mortgage, it is impossible to estimate the development of interest rates in the long run. There is no security that interest rates will not skyrocket thereby ruining an investment.

Though a stigma has been created about the negative effects of borrowing money, use of mortgage is still highly recommended to real estate investors for leverage and tax purposes. More debt means less required equity for investment and more tax shelter. Having decreased equity and increased tax shelter boosts the net present value of the investment.

This is why, analysts say, if you want an increased net present value and return of investment on a real estate property, borrow as much as you can: a higher loan-to-value ratio means a high interest rate as well. Only when an interest rate on the mortgage overpowers that of the overall internal return of investment is a mortgage not recommended. This is also why real estate analysis is highly needed prior to investing on a new property.