Should landlords choose a repayment or interest only buy-to-let mortgage?

When borrowing money for your buy-to-let mortgage, there are two ways you can repay the loan.

Interest only

With interest only mortgages, only the interest on the loan is paid each month; not the capital borrowed. At the end of the mortgage term, for example, 25 years, a landlord would owe the lender the amount borrowed, and if they wanted to retain the property they would need to have a plan on how to repay the original loan.

Many landlords choose to borrow money to invest in property with an interest only mortgage, planning to simply sell at the end of the term, at which point they will pay any tax due on capital gains and retain any equity. The interest only cost of the mortgage is tax deductible.

Repayment

Repayment mortgages will cost more each month.

The repayment amount is made up of interest on the loan and paying back a portion of the amount borrowed.

Over time, as more and more of the original loan is paid off, the repayment amount reduces as the borrower’s equity increases. The mortgage repayments are structured so that at the end of the term, both the interest and the full amount borrowed are paid off in full. The property is then owned outright.

To decide which mortgage option is right for you and whether a mortgage interest or repayment loan is the right choice, you will need to be clear on your investment objectives and take into consideration the tax implications of investing in property to let.

Mortgage interest and tax

When you own a property and rent it out, you’re essentially running a business. As such, there are certain costs that are tax-deductible and one of these are the mortgage interest payments.

Because of this, most landlords who want to maximise both their rental income and the return on their property investment, take into account the tax benefits and tend to invest with some level of mortgage over the long term.

Click to view all articles for the EPIC:
Or click to view the full company profile:
    Facebook
    Twitter
    LinkedIn
    Mortgage Advice Bureau (Holdings) Plc

    More articles like this

    Mortgage Advice Bureau (Holdings) Plc

    Is the prospect of longer tenancies good or bad news?

    In early July, the Government opened a consultation into the benefits and barriers to landlords offering longer tenancies. This is the latest step in its commitment to increase security of tenure for tenants in the PRS,

    Mortgage Advice Bureau (Holdings) Plc

    A helpful guide for first time buyers

    Buying your first home can be quite daunting. It’s likely to be the biggest financial commitment you’ll ever have, so you need to know that you’re making the right decision. Searching for a mortgage can be

    Mortgage Advice Bureau (Holdings) Plc

    What does the interest rate rise mean for me?

    The Bank of England has raised its bank rate today to 0.75 per cent and we’re here to cut through the jargon and answer, what does this mean for you and your mortgage? I’m on a

    Mortgage Advice Bureau (Holdings) Plc

    National Mortgage Index July 2018

    Mortgage Advice Bureau (LON:MAB1), Brian Murphy, Head of Lending comments: “June appeared to be consistently busy in many regions, with members of the network observing a solid number of buyer enquiries, regardless of the distractions of

    Mortgage Advice Bureau (Holdings) Plc

    August Interest Rate Decision

    Today, the Bank of England announced the bank rate would be increasing to 0.75 per cent, which could have an impact on those who are on SVR mortgages. Mortgage Advice Bureau Plc (LON:MAB1), Brian Murphy, Head of

    Mortgage Advice Bureau (Holdings) Plc

    Mortgage Advice Bureau plc another strong performance

    Peter Brodnicki, CEO of Mortgage Advice Bureau (Holdings) plc, said: “I am delighted to report another strong performance in the first half of 2018. Housing transactions have reduced slightly compared to the equivalent period last year,

    Mortgage Advice Bureau (Holdings) Plc

    MAB launches wealth and equity release proposition with Tenet

    Mortgage Advice Bureau has launched a wealth and equity release proposition in partnership with Tenet. The proposition will initially comprise 14 wealth advisers but MAB says it has “ambitious expansion plans”. Tenet is also dual authorising

    Mortgage Advice Bureau (Holdings) Plc

    Rightmove House Price Index July 2018

    Mortgage Advice Bureau (LON:MAB1) Brian Murphy Head of Lending comments: “The monthly Rightmove House Price Index provides us with an up to date ‘litmus test’ of consumer sentiment and activity in terms of the UK property

    Mortgage Advice Bureau (Holdings) Plc

    Buyers back in the market in May

    Mortgage Advice Bureau (LON:MAB1), Brian Murphy, Head of Lending comments: “May appeared to be one of the best months so far this year for some regions, with members of the network reporting a marked increase in

    Mortgage Advice Bureau (Holdings) Plc

    Halifax Price Index June 2018

    Brian Murphy, Head of Lending for Mortgage Advice Bureau comments: “The report released by the Halifax this morning indicates that house price growth appears to have steadied in May, following a somewhat lacklustre set of figures