Whether you are a first time landlord or a professional property developer, it is good to know the facts about the buy to let mortgage product you buy.

Buy to let mortgages can be a fantastic investment and a great way to purchase your property. With the right planning and calculations, you could find yourself making a profit on a property with minimum time and stress.

With a buy to let mortgage, the borrower takes out a loan on a property, and then rents it out to tenants. If you have a good business plan, the revenue accrued from the rent you charge will cover your monthly payments, as well as any maintenance or repairs on the property, and unexpected rises in interest rates.

Before you start, it is important to remember a few points about buy to let mortgages that are different to standard mortgages. Buy to let mortgages are based on the projected rental income you will make by charging rent from your tenants, and not on your personal income, say, from your job or other investments. This ensures a fairer deal and less complications later on. Normally, lenders require the rental revenue to be at least 130% of the calculated interest repayment, although some lenders only require this to be between 100 and 120%. It is advisable to build this into your calculations when deciding how much rent to charge.

Due to the method by which buy to let mortgages are paid off, lenders are also a little more lenient with repayment terms, meaning that buy to let mortgage terms are often longer than standard terms, extending to 45 years. Lenders also normally lend around 80% of the value of the property as well.

Repayment buy to let mortgages explained
With a repayment buy to let mortgage, you pay off the entire amount you owe by the end of the mortgage term, providing you with a clear end goal and the knowledge that the property will be yours outright as long as you meet all payments. In the initial period of the mortgage term, more of your payments go towards the interest accrued, whilst later on, more payments go to the principle amount borrowed. By the end of the term, the balance should be cleared.

Repayment buy to let mortgages can seem more expensive on a day to day basis. When compared with interest-only mortgages, this is true; with interest-only products, monthly payments are lower, but you must pay off the principle amount at the end of the mortgage term. Thus, repayment buy to let mortgages can save you money in the long run, and remember that your monthly repayment value should be reflected in the rent you charge, meaning that it does not actually come from your own resources.

A repayment buy to let mortgage is the only kind that guarantees you will own your property outright at the end. Provided you can lay out a substantial deposit at the start of the mortgage, and that you have calculated enough rental revenue to make the property pay for itself, a repayment mortgage could be a great investment for you.

This entry was posted on Monday, November 24th, 2008 at 12:55 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.