Choosing the right buy-to-let mortgage for you
Just as with a standard mortgage, there are different types of buy-to-let mortgages to choose from, and you can discuss all of these in more depth with your mortgage adviser.
Repayment or interest-only mortgage
First things first, you need to decide whether you want a repayment or interest-only mortgage.
During the mortgage term you will pay interest and the capital mortgage balance, so by the end of the full mortgage term the mortgage will be repaid, as long as you
do not change this at a later date.
You only pay back the interest and not the capital borrowed. It’s common for buy-to-let investors to opt for an interest-only mortgage, especially if you’re planning to
sell the property at the end of the term. If you do sell the property, you’ll repay the mortgage outstanding and you’ll also have to pay any tax due on the profit made
currently via capital gains.
Interest-only also means your monthly mortgage payment will be lower, as you’re only paying the interest and not the capital back, which may leave you with more
disposable cash from the rental income to cover additional costs covered later.
Fixed or variable
As it says on the tin, your mortgage repayments are fixed and won’t change month to month. Regardless of what happens to interest rates, your mortgage payments
will stay the same whether you fix for two, three, five years etc. Effectively, a fixed mortgage acts as an insurance policy against interest rates going up, therefore you
tend to find that fixed rate mortgages have a higher rate as you pay a bit more for the reassurance.
With a variable mortgage, your mortgage rate will fluctuate, however there are different types of variable mortgages available:
Standard Variable Rates (SVRs)
A Standard Variable Rate tends to follow the Bank of England rate closely but not exactly. For instance, if the Bank rate is dropped to 0.25%, your SVR might only
drop 0.2%. However, when the Bank rate goes up, they often increase it by the full amount. More often than not, you move onto an SVR once your fixed rate term has come to an end.
A Tracker mortgage will track the Bank rate exactly. This means that whatever interest rate the Bank of England sets, this is the interest rate that you’ll receive on your mortgage. It’s common to have a tracker mortgage for a few years and then you’ll drop onto an SVR after this period comes to an end. There are also some tracker mortgages that follow Libor which is a rate set by the banks themselves.
As stated in the name, discount rate mortgages offer a discount off the standard variable rate (SVR). The discount period can be for a short period of time e.g two or
three years, or it would be the entire term of the mortgage, depending on the deal.
There are other mortgage types to choose from, but these are the most recognised ones. Your mortgage adviser will be able to discuss all the different options with you - just get in touch with us and we'll be more than happy to advise you.
Because we play by the book we want to tell you that…
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.