October 21, 2007
The most comprehensive buy to let mortgage guide here?
This time we are looking for contributions to create the most comprehensive buy to let mortgage guide.
Give us your feedback or add terms.explanation by commenting this post.
By the way if you a blog spammer don’t waste your time. I only approve comments that are relevant to this blog’s topic.
We are not looking for a Buy to Let Handbook. We are looking for something specific to Buy To Let Finance or Buy To Let Mortgages.
For a real property investor, there shouldn’t be any Buy To Let Secrets. There are many terms used in conjunction with Buy-to-let mortgages. If you are confused then you are not alone. In an effort to help, this post will clarify as many terms as you would like. So feel free to come up with a special insight for these finance terms.
Buy-to-let Quotation System From The Money Centre.
APR – annual percentage rate. Usually shown in brackets after the headline rate for a mortgage deal, the APR is meant to incorporate any additional payments beyond the interest rate, thereby indicating the true cost of the deal. However, anomalies in the way lenders are allowed to calculate their APRs means they are not always an accurate reflection of what your loan would cost or a useful comparison with other loans.
BASE RATE - the rate of interest set by the Bank of England. Sometimes lenders call their own standard variable rate their base rate or basic rate.
STANDARD VARIABLE RATE
The Standard Variable Rate (SVR) is one where the lender sets its interest rate above the Bank Base Rate. This rate can rise or fall whenever there is a change in the Bank of England’s Base Rate. Lenders can be quick to react to rate increases yet slow to pass on decreases. There is no obligation to match changes to the base rate.
It is usual practice for a mortgage to be transferred to the SVR at the end of any discount or fixed rate period.
FIXED RATES
A fixed rate is what it says it is. The interest rate is fixed for a certain period. You will know the monthly payments over a set number of years. The downside is the loss of flexibility and increased early repayment charges if you repay the mortgage during the period.
LIBOR RATES
Some lenders calculate interest rates at a margin the London InterBank Offered Rate (otherwise known as LIBOR). This is very similar to the Standard Variable Rate; however the lender calculates the rate every 3 months. The amount you pay will be constant for 3 months. Because of the time lag against the Bank of England Base Rate, you could benefit by having a lower rate if interest rates start to increase, however the opposite could be true if they start to fall.
DISCOUNTED RATES
A discount mortgage offers a reduction off the lender’s standard variable or LIBOR rate. When the lender changes their rate, the interest rate will change, but it will remain at a set level below the SVR or LIBOR. A large discount will usually be for a short period followed by a further period at the SVR or LIBOR, during which time, you must stay with the lender or have to pay an early repayment charge to leave.
DISCOUNTED RATE (another definition) – a variable interest rate that is consistently a certain percentage below the lender’s standard variable rate.
CAPPED RATES
By capping your interest rate you are effectively putting a ceiling on your interest rate but without fixing. The main advantage of a capped rate is that while the interest rate can fall it will not rise above a certain level for a fixed period of time. The maximum the capped rate can rise to is often slightly higher than fixed rates and discounted rates are often lower.
CAPPED RATE (another definition) – a rate of interest with an upper limit but which becomes variable if the lender’s standard variable rate falls below that level.
BANK BASE TRACKERS
A tracker mortgage, literally tracks the Bank of England Base Rate. The lender guarantees to automatically match any increase or decrease that the Bank makes. The rate is set at a percentage above the Base Rate, however it is possible to combine these with discounted rates below the Base Rate (these can tie you in to a higher rate after the discount period ends). You benefit when rates fall, however when rates are increasing, a capped or fixed rate could be preferable.
FLEXIBLE
With a flexible mortgage, many lenders will allow you to make overpayments. This can be used to plan the early repayment of a mortgage. You can usually ‘re-draw’ the overpayments when you want to which is particularly helpful when it comes to redecorating your property of for repairs.
MINIMAL STATUS
Just because you can’t prove a high level of income doesn’t mean you are a bad credit risk! Many of our lenders recognise this, for example; you may have been made redundant and have sufficient capital to live off. Alternatively your partner/spouse may have a substantial income and the finance/property may be far more efficiently placed in your name for tax reasons. Another reason maybe that you are simply unable to prove (by normal means) your true income position. The Money Centre has negotiated schemes with lenders who take an open minded and sympathetic approach to such circumstances and are far more prepared to take a view based upon the viability of the property transaction rather than the income position of the applicant.
OVERSEAS
British mortgage lenders are often reluctant to provide mortgages to people who do not live or work in the UK. This is because their mortgage approval systems are designed towards information received from the UK Credit Reference Agencies and the lenders reliance on applicants having a provable UK source of income.