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Remortgaging Your Buy to Let
If you’re sitting on a buy to let property that’s making you money each month, you could be forgiven for not wanting to upset the apple cart by messing around with your mortgage. However, there are quite a few benefits to remortgaging and the process is easier than you might think.
Remortgaging allows you to:
The amount you pay each month is hugely affected by the interest rate of your mortgage, with even just a quarter of a percentage point making a marked difference. And each pound extra that your payment goes up is a pound knocked off your profits. Once outside of your discounted period at the start of your mortgage, you could find yourself moved to variable rate – significantly increasing your monthly outlay. The reasons for changing to a more favourable rate that are obvious.
Obtaining the Best Rates
When you apply for a buy to let remortgage, you’re most probably going to find that the rates you’re being offered are higher than you would get for a residential property. This is because lenders view buy to let investments as being slightly more risky being as you’re relying on your tenants paying you to avoid defaulting. That said, there are still some really good rates available to those with the will to search them out.
It’s important to say at this point that the rate itself whilst being important, isn’t the be all and end all of what makes a good deal. The all important figure is the overall cost when all the associated fees are added together. A great rate might look awesome at first glance, but if you’re having to pay a lot in associated fees, it’s not going to look like such a great deal when you look at the total payable.
Let’s look at an example of what we mean
If you were to apply for a £105k mortgage and you were presented with a 2 year fixed rate of around 3% with £1,000 worth of fees attached, it may seem much less appealing than a 3.5% deal for the same amount over the same term with just £99 in fees.
Let’s take a look at which is actually the better deal.
Mortgage deal 1 with the higher initial fee works out at £265 per month, whereas mortgage deal 2 with the higher rate comes in at £307 per month. So whilst the initial outlay is less, you pay for it and more in the long term. This more than adequately highlights the need to do your sums properly, rather than focusing on what deal offers the most attractive initial terms and the principle applies on all mortgages, meaning the more you borrow, the more you can end up overpaying by choosing the wrong deal.
So, when all’s said and done, letting sleeping dogs lie and not reviewing your mortgage terms on a regular basis can have a profound effect on the success of your buy to let investment. It could be that you’re already on the best deal possible, but for the sake of your finances, it’s best to check rather than to assume.