How buy-to-let mortgage payments work
Many buy-to-let mortgages are interest-only: you pay the interest each month and repay the loan at the end, often by selling the property or remortgaging. On a repayment basis, each payment also reduces the loan so it's cleared by the end of the term.
Lenders usually ask for a bigger deposit than for a residential mortgage, and they check that the expected rent covers the mortgage interest by a margin, often 125% or more, worked out at a higher test rate.
Worked example
A £250,000 property with a 25% deposit of £62,500 means borrowing £187,500. At 5.5% over 25 years, interest-only payments are £859.38 a month. On a repayment basis the payment is £1,151.41 a month, £345,424.21 in total.
Other costs of buying to let
Buying an additional property usually means paying the higher rates of stamp duty. You'll also have costs such as letting agent fees, insurance, maintenance and periods without a tenant.
If you own the property personally, you can't deduct mortgage interest from your rental income for tax. Instead you get a tax credit at the basic rate of 20% of the interest.
Inputs for the buy-to-let mortgage calculator
Property price
The price of the property you're buying to let.
Deposit
Your deposit. Buy-to-let lenders often ask for at least 25%.
Interest rate (per year)
The annual interest rate on your mortgage. The rate shown is only an example, so enter the rate from your quote. Interest is worked out monthly at one twelfth of the annual rate. Lenders may calculate interest differently (some charge it daily), so your actual payments can differ slightly.
Term
How many years the mortgage runs for.
Repayment type
Interest only covers just the interest, so the full loan is owed at the end. Repayment clears the loan over the term.
CALCULATOR QUESTIONS
Buy-to-let mortgage calculator questions
Are buy-to-let mortgages interest-only?
Many are, because the monthly payments are lower, but repayment buy-to-let mortgages are also available. Choose either option above to compare.
How much deposit do I need for buy-to-let?
Lenders commonly ask for at least 25% of the property's value, and the best rates often need more.
How do lenders decide how much I can borrow?
Mainly on the expected rent. They check that the rent covers the mortgage interest by a set margin, calculated at a test interest rate, as well as looking at your income and credit history.
Can I claim the mortgage interest against tax?
Not as an expense if you own the property personally. You get a tax credit worth 20% of the interest instead. Companies are taxed differently.