Repayment Buy to Let Mortgages Explained
A buy to let mortgage can be a very useful financial product. These types of mortgages allow you, under certain conditions, to purchase a property and then rent it out to tenants, which means you can use the revenues from the rents you collect to pay off the mortgage, and cover any repairs or improvements to the property as well. Effectively, with a little time and effort, your property can pay for itself.
There are a few aspects of buy to let mortgages to take into account, however, because they are not exactly the same as standard mortgages. Instead of being based on your income, buy to let mortgages are based on the projected rental income, which you will need to plan and show to prospective lenders when applying for buy to let mortgage quotes. That projected income from rent must be greater than 130 per cent of the calculated interest repayment, so it is wise to have done your calculations thoroughly when planning to apply for a buy to let mortgage. Buy to let mortgage terms are often longer than standard terms, normally between 5 and 45 years, and buy to let mortgage providers normally lend around 80 per cent of the property’s value.
These conditions aside, however, there are various mortgage products on the market, and the best one for you depends on your circumstances. The most important facts to look into are the deposit amount and purchase price, but remember to consider all the options available as well.
What is a repayment buy to let mortgage?
Repayment buy to let mortgages can seem more expensive. This is because monthly repayments are generally higher than interest only mortgages. They can save you money in the long run, however, and help you towards owning your home more quickly. The greatest attraction of a repayment mortgage is that it remains the only mortgage product that guarantees that your property will be totally yours at the end of the term, as long as you have repaid the loan. Repayment mortgage payments basically start off by covering the interest payments, and an amount that covers a small part of the capital. At the end of the term of your repayment buy to let mortgage, all the capital aspects of the mortgage will be paid for, meaning that you will finally own the property outright as the term finishes.
In the first few years of this kind of mortgage, practically all of your payments will pay off interest, whilst a small amount goes towards the principal amount borrowed. In the second half of the mortgage, the proportions switch, meaning that you pay off more principal than interest in your monthly repayments. This continues until you pay off the loan at the end of the mortgage term.
A repayment buy to let mortgage is normally a good idea provided you can lay out a substantial deposit. This is because the rental payments will cover the monthly mortgage repayments which are larger with a repayment mortgage.
