MDM Financial Services

Buy-to-let mortgages explained

A buy-to-let (BTL) mortgage is a property investment and is not a place where you live as your principal residence. If you intend to purchase a residential property to rent for investment purposes, the lender will finance your purchase not as a standard residential mortgage but as a buy to let.

Buy-to-let mortgages are a popular tool for seasoned investors and a good start-up financial product for new investors planning to take their first step into the rental property market. BTL mortgages are different than a typical standard residential mortgage, they also generally require investors deposit between 25% to 40%.

How a buy-to-let mortgage works?

Most borrowers prefer to take out an interest-only mortgage, they only pay the monthly interest on the loan from the proceeds of the rent they collect. However, a capital repayment option is also availble depending upon the rental income and circumstances of the borrower. In case of interest only mortgage the outstanding capital debt is paid at the end of the mortgage as per agreed terms or could be further refinanced.

The amount can be borrowed ranging from 60% to 75% (LTV) Loan to property value, this will generally depend on your deposit, rental income and other personal circumstances. Most of the lenders require monthly mortgage payment to be at least covered by the rent received every month.

What to consider?

▶ If you take a long term loan which is generally 25 years, in such a situation your repayments will be smaller, but it will take longer for you to repay. Although, for a short period loan term repayment could be higher, however the loan will be paid in a shorter period of time with the property becoming debt free sooner.

▶ If you opt out of the loan in the initial few years, generally early repayment charges are leived by most of the lenders, therefore you need to consider these charges according to your circumstances.

▶ Buy to let mortgages can be obtained on interest only basis, in such cases the amount outstanding at the end of the term can be repaid from the sale of the property or can be refinanced.

We can arrange small or large BTL loans for you from our extensive panel of lenders.

For further information, please contact us.
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