Buy to let products are specifically used by borrowers who wish to rent their property out to tenants as an investment. They normally achieve this by using the rent from their tenants to meet mortgage repayments. With the tenants paying off the mortgage, the landlord is able to maintain ownership of the property at the end of the term without laying out extra expense.

Most buy to let mortgages have similarities. All buy to let mortgages are based on your projected income from rent, rather than your personal income, and so you need to figure out how much rent you will have to charge in order to make a property pay for itself when assessing potential properties. The majority of buy to let mortgage lenders will require the projected income from rent to be 130 per cent of the calculated interest repayment, but lately, buy to let mortgage lenders have been dropping this to 120 or even 100 per cent, so it is a good idea to shop around. Apart from these main similarities, however, there are a few varied options open to borrowers looking for a good deal on a buy to let mortgage, and there are different products available to suit you specific circumstances.

What is an interest-only buy to let mortgage?

The way these mortgage products work is made clear in its name. Your monthly payments during the life of the mortgage, which could be anything between 5 and 45 years, are only paying the interest on the money you have borrowed. At the end of the mortgage term, you will still owe the principal amount, which you must at this point pay back.

There are a number of ways of paying off the principal amount, and with a time span of 25 years or more (as most mortgages are) there is plenty of time to plan for the last payments. Usually, people using buy to let interest only mortgages sell the property and use the money from that sale to pay off the principal amount of the mortgage. Alternatively, you have the option to release equity from an endowment, an individual savings account (ISA), or a pension scheme. It is a good idea to start one of these when you initially enter the buy to let mortgage, and then you can plan for it to mature at the end of your mortgage term.

One of the main advantages of interest-only buy to let mortgages is that the monthly payments involved are much lower than they would be with a repayment mortgage. Interest only buy to let mortgages are popular with many buy to let landlords, as those lower monthly payments can meet with mortgage lenders’ requirements for projected rental income whilst still allowing you to borrow a larger sum. Many buy to let borrowers are landlords using the extra funds to build up a portfolio of four or five rented properties, and with good planning and the right investment advice, this kind of mortgage can be a smart financial investment.

This entry was posted on Friday, October 24th, 2008 at 3:31 pm and is filed under Buy to Let Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.