Is a Buy-to-Let Mortgage Worth the Cost?
Having a buy-to-let mortgage is something which is increasing in popularity. A lot of people are looking for ways to invest money and to generate passive income and see having a property as a way to do this. If they cannot afford to buy the property outright, there is the option of getting a buy-to-let mortgage.
There are a few main differences between a buy-to-let mortgage and a homeowner’s mortgage. With the buy-to-let mortgage you will usually need to put down a larger deposit of around 25% of the property value and the interest rate charges are higher. This explains why rental values can be high; the owner has to cover the price of an expensive mortgage as well as paying a letting agent, insurance and other costs of owning a property such as upkeep. It can be a big responsibility.
Of course, the idea that you can get an income from just letting someone live in a home that you own sounds really great. It feels like you will just need to organise the mortgage and then rent it out and take the rental, paying the costs and keeping the rest. It can work out this way and it can really pay off. However, there are some disadvantages of having a buy-to-let mortgage as well and it is worth considering these.
The buy-to-let mortgage is expensive. Not only is there a high deposit to find but there are also higher interest charges than other mortgages. You may even find that there are higher charges for missed payments and other things as well. It is worth taking a good look at the small print and find out all about the specific charges so that you can make an allowance for them and make sure that you do everything that you can to avoid them.
When you have this sort of mortgage you would normally rely on rent being paid in order to cover the cost of it. This is great if you have a tenant in there, but there will be times when the building will be empty. At these times you will need to find the money to cover the mortgage repayment and any other costs yourself. You will not know how long it will be empty for either, so you may find that you will end up paying this money out for months or even years. This means that when you take out the mortgage, you will need to make sure that you will have enough spare money each month to cover those costs, just in case the property is empty. Many people feel that the property is a way of boosting their income, but at times it can be that their income will actually be reduced as a consequence of it.
Of course, there are also many advantages. Not only will you be likely to get a rental income on the property, which should be enough to cover the cost most of the time, you will also have a property that is gaining in value itself. This means that when you sell it, you will get back more than you paid for it. This will not be the case in the short term and there are a few circumstances where it may not apply, but in most cases it will be true. Most of the time, you will be able to put some money aside and this will cover the times when you do not have a renter in the place.
It is important though to consider the long and short term when you are taking on any sort of mortgage. You will be committing to twenty-five years of loan and a lot of changes could take place in that time. Interest rates could rise significantly, you may have more expenses, there may be a reduction in demand for renting the type of property you have and there may even be a drop in demand for buying that type of house as well. During all of the years that the mortgage covers, you will need to cover the repayments The only alternative is to sell the property but if it has not increased in value or the housing market is slow, you may find this is not as easy as you had hoped.
So there are advantages and disadvantages to getting a buy-to-let mortgage. It can open up a source of income for you as well as an investment. However you may find that you have to pay out a fair bit upkeep for the house and repairs and if it is empty for long periods you will be getting no income to cover these costs and the mortgage. Therefore you need to make sure that you are confident that you will be able to cover these costs, both I the short and long term, if it is necessary.