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Buy to let mortgage options

Buy to let mortgage options

Buy to let Mortgage Options


We recommend you take advice over the choice of buy to let mortgage scheme. The difference between the various schemes can amount to a lot of money.


Free advice is available from Mortgages Direct with regards choosing a mortgage.
If you already have a buy to let mortgage, then we would recommend you review your mortgage periodically. A buy to let remortgage is quite straightforward 


You can get a feel for the mortgages available by visiting our buy to let best buys.

Repayment Methods



While there are many different interest rate options, there are just two types of payment method; interest only and repayment (capital and interest).


With an interest only mortgage you pay the interest only to the lender. Most lenders will accept that at some point in the future you will sell the property so Sale of Property will be the means of repayment.

Some lenders may expect you to take out an investment to run alongside your mortgage, which you hope will pay off the loan at the end of the term. Mortgage lenders are fairly flexible about what investment method is used to pay off the loan and popular choices have been endowment policies, unit trusts and pensions.


With a capital and interest (repayment) mortgage each payment made pays both the interest and a small part of the capital. With this type of mortgage your mortgage loan will be paid off by the end of the term.


With a repayment mortgage you are using your capital to actively reduce your debt. With a interest only mortgage you hope that your invested capital will achieve a better rate of return than the mortgage interest rate charged

Interest rate Options



There are many different mortgage interest rate options available:

Standard Variable rate This is the lender's normal variable interest rate. 

Fixed Rate allows you to fix the interest rate of your loan so that for a set period you have the reassurance of knowing that your mortgage payments will not alter.

A Capped Rate fixes a upper ceiling to the interest rates so that in the event of rising interest rates you will not pay any more than the limit set by the cap. If rates fall below the cap then your mortgage payments will reduce.

Fixed and Capped rate mortgages are useful for those who are budgeting and need to know that their mortgage payments will not exceed a set figure.

Discounted Rate mortgages allow a discount to the standard variable interest rate for a set period.
As an incentive to attract new clients some companies may offer a lump sum Cash back. These are obviously useful if cash is needed at the outset, however the opening interest rates may not be as attractive.

Flexible mortgages , also termed Australian mortgages have become increasingly popular in recent times. They enable the borrower to actively manage their mortgage perhaps by altering the monthly payments or by paying off lump sums. Other options include the facility to take payment holidays and to borrow further amounts.

Early repayment charges: To attract new borrowers, mortgage lenders may offer an introductory discount or some other incentive. This will invariably cost the lender money. To protect their investment the lender may impose early repayment charges should the borrower redeem their mortgage within a specified period. These charges are likely to apply during the first few years of a new mortgage. Schemes are available which exclude these charges.

Investments

With a buy to let mortgage it is generally not required to take out  an investment to repay your mortgage. Most lenders are happy with sale of property as the means of repayment

However you can take out a separate investment and use the proceeds of that investment to clear your mortgage.

The following investments have been popular choices for people with interest only mortgages.

Endowment policies : These policies are run mainly by insurance companies and friendly societies. They are regarded as low to medium risk investments. The fund managers invest on the stock market, in property and in fixed interest investments.

Policies can be unit linked or with profits. Unit linked means that a value is calculated, usually daily which directly relates to the value of the underlying fund. Unit prices can be followed in the broadsheet newspapers.

A 'with profits' policy entitles you to a share in the profits of the insurance company. Issuing companies vary their annual bonus according to investment performance and anticipated future investment conditions. The variance in annual bonus has historically been small which provides a degree of security to the policyholder. A terminal bonus is also normally declared at the end of the term. Life assurance is included in the contract which will pay off the mortgage in the event of death.

Unit trusts : Predominantly stock market investments where your money is 'pooled' together with other investors in a fund which may be managed or unmanaged (tracker).

There is a risk element to your capital as unit prices can fall as well as rise, and a periodic review would be recommended to ensure that the fund performance is adequate. This type of fund is quite flexible and tax free benefits are available if taken out within an ISA.

Pensions : If you are eligible for a personal pension, you can opt to use part of your pension fund to clear your mortgage. This will obviously reduce the amount that you will have available to go towards your pension, however you will receive full income tax relief on your contributions.

This means that a higher rate taxpayer paying 100 per month into a pension fund will in fact only contribute 60 per month, the balance being paid by the inland revenue.

Property types



A mortgage is agreed on the basis that the property is a good security. Lenders in general do not like lending on the following properties:

Property that requires any structural work or remedial works.
If the property requires any significant work doing to it, then please make sure your advisor is aware of it.

Freehold Flats, Studio flats, Ex local authority flats, High rise flats, Flats above commercial premises (particularly food).

Non standard construction, ie. timber or concrete walls.
If the property you are considering falls into any of the above categories, please contact us.


Auction Properties

If you are considering buying a property at an auction. It is most important that you have a mortgage agreed before you bid for a property. On the fall of the hammer, you will be expected to pay a deposit (often 10%), with the balance paid within a short time period.
Your deposit may be lost if your mortgage does not complete within this time period.
Please read carefully the terms specified by the auction provider.

We regret we do not provide advice for the purchase of properties through an auction

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