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POSTED 08 June 2016 Mortgages

Types of Buy-to-Let Mortgages

Buying a property to rent out is a huge investment for the future. Whilst becoming a landlord can be hugely profitable, a standard mortgage will not suffice.

Landlords have to get a special buy to let mortgage on their property and there are many of these available on the market so it can be tricky to decide which one to go for.

Our buy to let mortgage comparison guide below should help you compare buy to let mortgages to be able to source the perfect mortgage for you.

Here’s some important information about the most popular types.

buy to let 

Types of buy to let mortgages 

Generally a 25% buy to let mortgage deposit is required, but the larger the deposit you put down the better the repayments plan you’ll be able to negotiate. Often people who can afford to put down a buy to let mortgage deposit of around 40% can get the cheapest rates.

How much you pay back in each repayment varies depending on the type of plan you choose. Remember, the interest rate is normally higher than that of a standard mortgage and the mortgage you’re offered tends to be calculated on your expected rental income.

There are four different types of buy to let mortgages, these are fixed rate, variable rate, repayment and interest only.

  • Fixed rate A fixed rate mortgage means that you have set monthly payments which are agreed for a certain period of time. These are often for 2-3 years or a 5 year plan, however once the set period is over you will have to switch on to a different plan, which could be a variable rate.
  • Variable rateThere are 2 main different types of variable buy to let mortgages. The first one is called a tracker, where the interest rate is above, below or remains the same as the Bank of England interest rate. The second is a fully variable mortgage where the lender decides on a rate and this can be changed at any time.
  • Repayment A repayment buy to let mortgage means that you pay off some of the value of the property and the interest every month. This essentially means that by the end of a set period of time you’ll have fully paid off the house and interest and the property is yours.
  • Interest onlyAn interest only buy to let mortgage means that in your payments you’re solely paying off the interest on a property. At the end of the term, you will own the property but the mortgage on the property will still be outstanding.

How to get a buy to let mortgage?

Be aware that most mortgage lenders have other eligibility criteria that you must qualify for. This can be things like being over a certain age and earning a certain regular income. Remember that with buy to let mortgages, arrangement fees tend to apply and these can be much more expensive than with a standard mortgage.

When considering a buy to let investment and which mortgage plan to choose it’s important to factor in the months where your property could be empty or void of tenants whilst maintenance and repair work is carried out, and that you can afford your mortgage repayments in these periods.

If you need more advice on sourcing the right buy to let mortgage for you, House Network’s advisors will be able to help you compare buy to let mortgages to find the right type of mortgage for your buy to let investment, whether it’s a deposit, interest only, fixed or variable payment plan.

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