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Hi totally new to property investing, A question aimed at those owning buy to lets for long term via interest only mortgages and thinking about selling off years later.
Do you bother putting savings aside to help pay off the mortgage at end of term and protect against housing market plummeting (well it does happen occasionally) or do you have other strategies and use surplus for reinvesting elsewhere?
I am one of those not over keen on interest only, but thought if there is available option with paying off the capital with small lump sums through the years via savings from a high interest account this might prove a safer option and a at least there would be a pot of cash for financial emergencies. I am sure i heard that paying of some capital with interest only was available but not sure how that works.
I have heard of banks calling in loans when property values fall because of LTV even if the borrower is still paying off the monthly interest.
Apologies if this is a rather green question.
It depends on your investment strategy, a lot of Landlords like to leverage buying multiple properties and Interest Only helps give them money in the bank at a quicker rate to purchase a further property.
Though that is not for everyone, if you want to remove financial risk from your property investment then a Repayment Buy-to-Let is one way of doing so. Eventually, the mortgage is paid off in full.There are also Interest Only Mortgages that allow a certain percentage % of the loan to be paid off every year, an "Overpayment Allowance". (Just send the excess money in usual channels to Lender).Other Landlords reduce the mortgage amount at the time of remortgage, perhaps at the end of a 2 or 5 year fixed rate period. (A transfer from savings to Solicitor who is completing remortgage, to use to repay existing lender)
What I would say - it is odd to have significant sums of money in the bank with low interest rates, as well as borrowing on a mortgage on higher interest rates.Whilst Yes! You want a rainy day fund, for void periods, repairs and so forth. You would typically be better reducing the mortgage and therefore the interest charged.
There are not many on the market but we also have Offset Buy-to-Let mortgages which have similar effects of reducing interest on the mortgage, as long as you have funds in a savings account with the same bank.
The best plan forward for you depends on your personal circumstances and would recommend discussing the details with a Buy-to-Let Mortgage Broker such as the team at Bespoke Finance to determine the best route forward for you.
_________________________________________________________________________My posts are not financial advice, just a rambling guy passing time on a coffee break.The team at Bespoke Finance offers advice, including Limited Company Buy-to-Let , HMO Conversion and Cheap Life Insurance._________________________________________________________________________
Thanks Adam. Seems i have many strategies to choose from, I guess its a balance of what risk i am prepared to take against building cash for other property purchases, whilst taking into account the differing interest rates. It's all a bit bewildering.
Go for interest only and pay down in chunks is the method I'm using. You never know, you may want to keep the property at the end of the term if it's not the right time to sell?
A lot of mortgages allow you to repay around 10% of principal each year - and of course an IOM is cheaper to service in void periods.