The buy to let mortgage allows the borrower to purchase a property. Then, the property can be rented to the tenant. The tenant pays the rent in which the borrower uses to pay the mortgage payment.
The borrower benefits from buy to let mortgages by creating the home equity. As long as there are tenants, the borrowers never need to use their own money to pay the mortgage payment. Eventually, the borrower can sell the property at a higher price.
The mortgage lenders may approve many types of buy to let mortgage refinancing. That includes fixed rate, variable rate, capped mortgage, discounted mortgage, cashback mortgage, and interest only mortgage.
In a fixed rate mortgage, the borrower pays the same interest rate on all the payments. So, the borrower pays the same mortgage payment on each payment period. This is conventional way to finance a property.
In a variable rate mortgage, the borrower pays the current interest rate. The interest rate fluctuates from time to time. As the interest rate increases, the borrower pays less on the principal. As the interest rate decreases, the borrower pays more on the principal.
In a capped mortgage, the borrower pays the current interest rate up to the maximum interest rate. The mortgage lenders set the maximum interest rate that the borrower pays. If the current interest rate went past the maximum interest rate, the borrower will only pay the maximum interest rate. If the current interest rate went below the maximum interest rate, the borrower pays a lower interest rate.
In a discounted mortgage, the borrower pays less interest rate than the current interest rate. For example, the current interest rate is five percent. The mortgage lenders charge one percent below the current interest rate which is four percent.
In a cashback mortgage, the borrower gets a certain percentage from the mortgage. For example, the mortgage lender gives three percent cashback on a $100,000 mortgage. So, the borrower gets $3,000 (3% x $100,000).
In an interest only mortgage, the borrower only pays the interest rate up to the end of mortgage term. So, the borrower does not pay off the mortgage. At the end of the mortgage term, the borrower pays the normal amount of mortgage payment.
The offset mortgage is a type of mortgage in which the borrower can use their savings account to offset the mortgage interest. The mortgage interests are substantial amount especially at the start of the mortgage.
Using the interest on savings account, the borrower uses pay off the mortgage interest. In other words, the interest on savings account cancels out the mortgage interest that the borrower pays on a conventional mortgage.
The offset mortgage originally started from Australia. Later, the offset mortgage rises in popularity in the United Kingdom. Before, the mortgage lenders only target the wealthy. Now, the mortgage lenders are widening the market for this type of mortgage.
Since the borrower receives no the interest on savings account, the borrower do not pay the tax on interest on savings account. Naturally, the interest on savings account will be use to pay off the mortgage interest. In United Kingdom, many borrowers are on a high tax bracket. The borrower often sees the forty percent of the interest goes to tax.
In many times, the borrower pays a loan to value ratio of ninety five percent. That means the borrower pays five percent as down payment. Due to competition, many mortgage lenders may offer as low as loan to value ratio of eighty percent.
The interest on savings account is big enough that many mortgage lenders may offer to repay any amount without mortgage penalty. In a conventional mortgage, the borrower pays mortgage penalties on any repayment over the maximum limit to repay the mortgage early.
Usually, the mortgage lenders link the mortgage and savings account into a single account. Therefore, the borrower sees only one balance. This is more commonly known as Common Account Mortgage (CAM). For example, the borrower takes $300,000 mortgage. The borrower uses the savings account that is worth $100,000 to offset the mortgage interest. In return, the borrower only pays interest on $200,000.
The variation of offset mortgage is increasing in numbers due to compete with other mortgage lenders. For example, the mortgage lenders may allow any debts into the account. In short, the borrower can include the personal debt like credit card, and car loan.
In a discounted mortgage, the borrower pays lower interest rate in a set number of periods. So, the borrower pays lower mortgage payment until the number of period expires. After the set number of periods, the mortgage reverts back to the regular interest rate.
The discounted mortgage may be fixed or variable interest rate. For example, mortgage lenders offer one percent off the regular interest rate. And, the borrower pays lower mortgage payment with one percent off the regular interest rate. In a variable rate, the interest rate may deep lower. Hence, the mortgage payment deeps lower as well.
For the first time home buyer, the discounted mortgage may be an excellent idea. The initial expenses for the first home may be overwhelming. As a first time home buyer, the home buyer may need to furnish, repair, or renovate some parts of the home. And, the home buyer pays the mortgage financing closing costs. If the home buyer lives far away to the new home, the home buyer pays the moving expenses as well.
The closing costs on mortgage are fees to process the mortgage refinancing or financing. For example, the escrow fee, underwriter, document preparation, origination fee, appraisal, administrative fee, processing fee, wire transfer, mortgage broker fee, tax service fee, and flood certification are closing costs.
Since the borrowers pay lower mortgage payment, the borrowers can use the extra cash as they please. For example, they can renovate the kitchen, repair the bathrooms, or convert the garage to extra room. The renovations may actually help to increase the value of the home.
The mortgage lenders are constantly stream lining the mortgage application procedures to reduce the closing costs. At the same time, the mortgage application procedures improve the efficiency and simplicity of the whole procedures. In fact, the borrower can apply for pre-approval without extra costs, apply for discounted mortgage by phone, or apply for discounted mortgage by internet.
The borrowers may be allowed to pay lump sum to pay off the mortgage early without penalty. Penalty is a fee that is charge to the borrower for paying the mortgage too quickly. However, the mortgage lenders will charge penalty when the borrower pays off the total mortgage or switches to another mortgage financing.
The capped mortgage is basically an adjustable rate mortgage in which the maximum interest rate is set. Any spike of interest rate over the maximum interest rate will not affect the mortgage repayment. The borrower knows the maximum mortgage payment.
When the interest rate takes a dive, the borrower pays a lower monthly mortgage payment or bi-weekly mortgage payment. Using the capped mortgage, the borrower is protected from a spike in interest rate.
This protection on interest rate spike comes with a price. The mortgage lenders will charge a slightly higher interest rate. For example, the current interest rate is 4.5%. The borrower pays 5.0% interest rate.
The main benefit of capped mortgage is peace of mind. The borrower knows exactly how much is the highest mortgage payment. And, the borrower knows that the mortgage payment will not exceed the maximum mortgage payment.
Recently, the mortgage lenders suffered from mortgage meltdown. The interest rate went up high enough that the borrower could not repay the mortgage. There were so many foreclosures. In this instance, the capped mortgage could have been advantageous for the borrower.
The interest rate for capped mortgage is a compromise between the fixed rate and adjustable rate. So, the interest rate will be slightly over the fixed rate.
Annually, the mortgage lenders allow a certain level to pay additional or lump sum amount without paying mortgage penalty. When the borrower pays additional amount or lump sum amount over the certain level to pay off mortgage early, the mortgage lenders charge the mortgage penalty as well.
In most mortgage lenders, the capped mortgage is available mortgage options for buy to let mortgages. The buy to let mortgage is a mortgage in which the borrower purchase the property to rent. The borrower can purchase several property with buy to let mortgages.
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