Buy-to-Let Mortgage: Is it the right mortgage for you?
Buying Renting
You’ve dreamed for years of becoming a property investor: buying up properties to rent out, and making your living in this fashion. Now, you’ve finally got the time and the means to make it happen, so what’s the next step? If you’re like most people in this situation, you’re wondering if a buy-to-let mortgage is right for you and, if so, how you go about getting one.
Read on to learn more.
What is a Buy-to-Let Mortgage?
A buy-to-let mortgage is a mortgage designed for landlords who are purchasing a property for the sole purpose of renting it. While they’re typically more expensive than a standard, first-home mortgage (interest rates are higher and down payments can be between 25%-40%), they can go a long way toward helping you become a property investor and get your rental business underway.
Who Applies for a Buy-to-Let Mortgage?
As a general rule, only people who want to invest in property use for buy-to-let mortgages. Because these loans are more expensive than standard loans, and because real estate investing is risky, it’s not common for people who cannot afford or are unwilling to accept the risk associated with buy-to-let mortgages to apply for them.
Even though buy-to-let mortgages are designed for a particular group of investors, there are some caveats. For example, it’s difficult to secure a buy-to-let mortgage if you don’t already own at least one property. While it’s okay if this property still has a mortgage on it, owning a home already is a near requirement for buy-to-let mortgage approval.
What’s more, borrowers who apply for buy-to-let mortgages must have good credit and cannot be too close to their borrowing cap. Additionally, buy-to-let mortgages have an age limit associated with them, and few lenders will grant a mortgage to someone who will be older than 70 or 75 at the end of the loan’s term.
Should You Get a Buy-to-Let Mortgage?
The answer is complicated, and it depends entirely on your financial situation, risk tolerance, and future outlook.
On one hand, if you’re comfortable with the risk associated with real estate investments and you’ve had some experience owning and renting properties before, a buy-to-let mortgage can be an excellent way to boost your rental business and secure more profitable investments.
On the other hand, though, buy-to-let mortgages are a bad idea for people who are inexperienced in property management or who are unsure about whether they are comfortable with the levels of risk inherent in real estate investment.
What’s more, since buy-to-let mortgages come with increased fees and higher interest rates, they’re not a good fit for people who are not confident that they can keep the mortgaged property rented on a regular basis.
With this in mind, a buy-to-let mortgage can be a fantastic idea, but only if you proceed carefully.
