Buy To Let Mortgages
Not all properties are bought to live in. Renting out a property can be a great way to make money, to save for retirement, or build capital for further investments. However, becoming a landlord can sometimes be a risky venture.
First of all, you need to make sure you’re getting the right loan for the property. Buy-to-let mortgages are designed specifically for those who are buying a home in order to rent it out. They are similar to standard mortgages for a residential property, but there are some key distinctions that are worth learning about. Let’s take a closer look below.
The Key Distinctions Of A Buy-to-let Mortgage
Buy-to-let mortgages are mandatory if you plan on renting out a home and need a loan to do so. As such, you should be aware of what you’re getting. For one, buy-to-let mortgages are considered higher risk than other kinds, due to the risks of being a landlord (difficult with rent collection, vacant properties, etc.).
As such, they usually demand a higher deposit, often around 25% of property value. The other costs of a buy-to-let mortgage can be higher, too, such as arrangement fees.
Furthermore, buy-to-let mortgages are interest-only, rather than capital and interest loan. You don’t make repayments on the loan, but monthly interest payments instead. While this means lower monthly payments, it means you must pay off the entirety of the mortgage at the end of the term. Many do this by selling the property or by building savings through their rents.
Choosing The Right Buy To Let Mortgage
As many buy-to-let mortgage repayments are on an interest-only basis, there isn’t much variation there except in the loan size, the rental value of the property and your credit/financial situation. Otherwise, the big difference in going to be in how much of a deposit you have to make and how big the loans are, as well as whether the mortgage is a fixed-rate or variable rate.
Can I Get A Buy-to-let Mortgage?
Standards for applicants on buy-to-let mortgages are higher than in residential mortgages. The borrower must usually own a home outright, or on a mortgage. They must be in good financial standing with low debt and good credit. How high your salary is will impact your chances of getting a mortgage, too, with most lenders expecting landlords to earn over £25,000 a year.
What Happens At The End Of A Buy-to-let Mortgage?
When the term of the interest-only mortgage deal is up, the borrower will then have to pay off the rest of the cost of the property. Many do this by selling the property, but you may also choose to get a buy-to-let remortgage.
This will reduce the amount you eventually have to pay at the end of the second loan term if you can secure it. If you aren’t certain that house prices will rise when you take out a mortgage, you may also consider taking out savings from the rents earned to pay the rest off.
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