Buying a home can be a long journey and you may encounter obstacles along the way, but there may be more to consider with buy to let mortgages.
If you plan on renting your home out, then you’ll need to opt for a buy to let mortgage. But what exactly is a buy to let mortgage? And how are they different from regular mortgages?
Keep reading to learn more about buy to let mortgages, and how buy to let mortgages are different from regular mortgages.
What Is A Buy To Let Mortgage?
A buy to let mortgage is required if you’re purchasing a property purely to let it out (rent it to others). This is a different kind of mortgage – it’s a buy to let loan that’s designed purely for landlords that are buying a property to let it out.
Buying to let is considered a low-risk long term investment, and can be a great way of generating a solid income.
Many people will buy to let as a source of income, as you can earn a profit after buying a home and then collecting the rent payments from tenants.
You also have the potential to make money if you plan on selling the property further down the line – but this depends on the condition of the home and the state of the housing market at the time.
When you buy to let, you become a landlord. However, as a landlord, you’ll have more responsibilities than just keeping up with mortgage payments.
You’ll be responsible for maintaining the home and ensuring that your tenants are happy and that they pay their rent and bills on time.
Being a landlord essentially means that you’re running your own business, and you should take care of it as such.
You’re investing your finances in properties but you have more control over the outcome than most other investment types such as stocks.
It may not be as simple as choosing tenants and collecting their rent – being a landlord requires hard work, dedication, and there’s always a small element of risk. For example, you may be left struggling to find tenants, which means you’ll be essentially losing money for a period of time.
There are two main reasons that people opt to buy to let mortgages. You may be an investor that has more than one property and you use the rent from tenants as your main income, or you may be an investor that wants to start earning extra income from renting out a property or two.
How Is A Buy to Let Mortgage Different from a Regular Mortgage?
First of all, you’ll need to pay a higher deposit on buy to let mortgages than regular mortgages, as lenders will see this as more of a risk. Typically, the deposit will be around 25% higher, but this depends entirely on the lender and your circumstances.
Another difference is that your mortgage payments will consist of just interest – however, you’ll receive the bill for the loan at the end of the mortgage term.
You’ll still be able to choose between repayment and interest mortgage – and if you choose the former, then it’ll be repaid in full once the term is complete.
Most landlords, on the other hand, choose interest-only mortgages. If you choose this type of mortgage, then your monthly payments will be lower, but you’ll still owe the mortgage loan at the end of the term.
This is ideal for investors, as investors will usually sell their property at the end of the term. Depending on how the housing market is looking, the price of the property will have gone up – which means they can pay off the loan upon the selling of the property, and earn a little extra in the process.
The amount you can borrow isn’t determined solely by your income – it’s more focused on the amount of rent you’ll be charging your tenants. Lenders will check out the local area and assess the demand, and how much other landlords charge rent in the area.
If you live in or around the Liverpool area, we can help to find the best buy to let mortgage for you. It’s always best to seek professional advice, regardless of whether this is your first buy to let property or not.