This buy to let mortgage calculator figures the monthly rental income required, your monthly mortgage payment and total financial effort required from your side. There is in depth information on this topic below the form.
What is a buy to let mortgage?
This is a mortgage type someone take in order to buy a property which is then rented to generate a monthly revenue. This income should cover the monthly mortgage payment and the effort of the borrower. Usually this kind of transaction requires you to have some funds available for a deposit or down payment, which represents between 15% and 40% from the property price. Lenders allow a LTV ratio of up to 60%. So it implies some financial effort from the borrower consisting in the cash for the deposit plus some one time buying costs, fees and taxes where applicable.
This type of opportunity may be an attractive income investment especially when mortgages can be taken at low rates and when other financial instruments such as stocks for instance prove to be too volatile and risky. This is recommended for those with enough cash, even though it comes with some risks too, as the mortgage rates may rise at certain point and make it unprofitable, or for instance in case the renting market goes down and the rental price should go down as well.
How to buy to let?
Here’s a to do list in order to successfully deal with a buy to let mortgage investment:
- Search for an optimal or promising neighborhood where you expect that most likely on a long term basis there will be enough tenants interested in renting. This should a place where potential people willing to rent would like to live due to various reasons, for instance because:
- it is very close from a business centre, factory or workplace;
- it is very close of stations of public transport;
- it is a very safe or well seen area or due to any other special reason.
- Search within that area which are the property prices and get the best deal.
- Check your cash available for a deposit and search for best mortgage rates.
- Do the math with our buy to let mortgage calculator in order to see what is the profitable or optimal renting quote in case of different scenarios.
- Establish the tenant profile you want to approach.
- Establish a realistic monthly rental income which should cover the monthly mortgage payment plus the buying associated costs.
- Sign appropriate renting contract by establishing penalties and warranties for the tenant in case the contract terms are breached.
Example of a result
In case of a plan to purcahse a property of £100,000 with a deposit of 20%, overs 25 years with some initial buying costs, fees or tax of £ 5,000; starting December 2014 with no expected return on investment the following results will be displayed:
■ Mortgage amount: £80,000.00;
■ Loan to value (LTV): 80.00%;
■ Deposit/down payment: £20,000.00;
■ Your total one time effort for buy to let (down payment + buying costs & fees): £25,000.00;
■ Your monthly mortgage payment will be: £444.67;
■ The monthly rental income required is around £528.00. This assumes you will get your total effort of £25,000.00 back within the mortgage term in monthly equal parts of £83.00;
■ Estimated payoff date is December, 2039;
How does this buy to let mortgage calculator work?
This tool can help you simulate at what extent a buy to let mortgage can be profitable as it depends on quite many factors, for instance:
- The stability of the rental price on a long term basis. In this respect this application can help you figure out which will be the minimum required rental income for a fixed mortgage rate.
- The percent of the deposit you have available which determines the amount of money you have to borrow. This is the amount of money you invest in.
- The volatility of the mortgage rates over the next few years.
- The renting demand evolution during the loan term.
- The attractiveness of property you are about to buy. It is an important aspect that is why you first need to analyze the best properties to buy that may be of interest for as many potential tenants as possible.
By taking account of the data that be provided within the form it returns the following scenario details:
- Mortgage amount as the difference between the purchase price and deposit.
- Loan to value (LTV) is the rate of the amount needed to finance the plan from the purchase value.
- Deposit/ down payment is the cash invested in.
- Your total one time effort for buy to let is the amount obtained by adding the down payment to buying costs & fees or tax.
- Your monthly mortgage payment.
- The monthly rental income required by taking account of the monthly debt payment and on covering your funds invested in.
- Your monthly profit if specified as a percent from the rental price.
- Your annual profit and the estimation on how quickly you will get back your investment.
- Estimated payoff date.
- Your total net profit from buy to let where the case. It is estimated by subtracting your financial effort from the total profit.