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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
A buy to let remortgage (sometimes referred to as a btl remortgage) is a loan that helps cover the cost of buying a rental property that you can apply for when your existing mortgage deal ends.
When you switch to a new mortgage deal with a different lender, this is known as a remortgage.
You should normally remortgage a buy-to-let property when the introductory period of your current buy-to-let mortgage deal ends.
That's because you'll be switched to your lender's standard variable rate (SVR), which is usually higher than other fixed and variable deals available.
If you want to switch before your current deal ends, to take advantage of better rates for example, then you may face early repayment charges (ERCs) which can amount to thousands of pounds. So, make sure you're prepared to pay these if you want to switch early.
However, if your current deal is due to end within six months, you can lock in a new rate now and switch when your deal finishes. This means you avoid paying any ERCs.
Plus, if rates drop before your new deal begins, you can switch again to a more favourable rate.
You don't need to save up a separate deposit for a buy-to-let remortgage provided you have enough equity in your property to qualify you for a deal. The equity is the amount of the property you own outright.
For example, if you have 25% equity in your property, you will be offered a 75% loan-to-value (LTV) remortgage deal.
LTV is the ratio of the loan you've borrowed compared to the value of the property or price (whichever is lower). Better rates are usually offered for lower LTV deals as these are seen as less risky by lenders.
Buy-to-let mortgages are typically taken out on an interest-only basis. This is different to residential mortgages which are most often taken out on a repayment basis.
If you're on an interest-only buy-to-let mortgage, you won't have built up any additional equity in the property so you'll remortgage onto the same LTV ratio as before.
Although you could put down a larger deposit by adding money from savings to get a higher LTV deal (and normally better rates).
You may also be able to remortgage onto a higher LTV deal in order to release equity.
One of the reasons some people choose to remortgage a buy-to-let property is to release some of the equity they have in the property.
This could be to help finance the purchase of another property or to help with improvements to rental home.
This involves remortgaging onto a higher LTV deal. So, essentially you're borrowing more from the lender than previously, but this allows you to take some of your equity share out of the property. Use an equity release calculator if you're unsure how much equity you have in your property.
If you have multiple buy-to-lets, you could potentially remortgage onto a portfolio mortgage with one single monthly payment for all properties. You could release equity across your portfolio by doing this.
Releasing equity does involve taking on more debt, and you may face higher monthly repayments as you're moving to a higher LTV deal and may face higher rates.
That's why it's always a good idea to seek expert advice from a mortgage broker before releasing equity from a property.
You may also choose to sell your buy-to-let property to access equity. When you sell the home, you would need to repay the mortgage loan you've taken on to purchase it.
You would then receive the rest of the money, which you could use for financing other things.
However, bear in mind there are other costs involved with selling a property, including solicitor fees. You may also face ERCs if you sell your home and repay the mortgage before the end of your introductory period.
Selling a buy-to-let or second home also normally results in capital gains tax. This is applied to any profit made on the property since you originally purchased it, and is charged at 28% (higher-rate tax payers) or 18% (basic-rate tax payers.
From April, capital gains allowance will also be reduced from £12,300 to £6,000, which will impact the profits you're able to gain from selling a buy-to-let property.
The interest rate on your buy-to-let remortgage will determine how much your monthly repayment are.
That's why it usually a good idea to try and find the best buy-to-let mortgage rate possible when you're switching deal.
However, it's also worth bearing in mind the additional fees you have to pay.
In some cases a deal may have a low initial rate, but the fees involved actually make it more expensive overall than a deal with a higher initial rate but lower fees.
There are some additional fees to consider when remortgaging your buy-to-let.
The main fee lenders charge on mortgages is the arrangement fee. It may also be called a product, booking or application fee.
It's important to look carefully at this when choosing a deal, it may be a fairly sizeable amount. It can range from a few hundred pounds to 1% of the total loan amount.
The good news is that many remortgage deals offer free property valuation packages so you may not need to factor this in.
If you do though, it could cost from a few hundred pounds to over £1,000, depending on the value of the property.
There are also legal and conveyancing costs associated with remortgaging. However, some remortgage deals also offer free legal packages.
It's worth double checking this before settling on a deal, so that you can budget appropriately.
If you choose to leave your current deal early when you remortgage, you may also face ERCs or exit charges.
These can cost thousands of pounds so make sure to factor these in when budgeting for your remortgage.
If you want to remortgage your residential home to a buy-to-let property, this may be possible depending on the circumstances.
You could speak to your current lender or bank about switching to a buy-to-let mortgage deal.
However, another option would be to speak to a mortgage broker who can look at the whole of the market.
The benefit of this would be that they may be able to find you a better deal with another mortgage provider, saving you money.
At the end of your interest-only buy-to-let mortgage, you need to repay the money you borrowed from your mortgage lender.
You can do this by selling the property. Alternatively if you have built savings up in another way (through an ISA or saving rental profit), you could pay it off this way.