Is a Buy-to-Let Mortgage Worthwhile?

A buy-to-let mortgage is a loan which second home owners get to cover the cost of borrowing for buying a house. They will then rent out the house to generate an income. It is worth understanding a bit about these types of mortgages before getting one.
A buy-to-let mortgage is the same as any other mortgage in that it is used to cover the price of buying a home and you repay it over a long term usually between twenty and thirty years. There are some differences though, which make them worth thinking hard about. The first is the deposit. A standard mortgage usually requires a deposit of around five percent. A buy-to-let mortgage usually requires a deposit of about a quarter of the value of the house. This is a significant chunk of money. They do this because they feel there is more risk that you will not be able to make the repayments. This is perhaps because you may have another mortgage on your main home as well, you may not be able to rely on the rental income for a constant income to cover the repayments and they want to make sure that you can really afford to take on the loan. Some people may not be able to save up this much money and therefore may not be able to get this sort of mortgage at all.

The second difference is the interest rate. A buy-to-let mortgage gas a higher mortgage rate than a standard mortgage. This is again probably due to the perceived risk and so it could be a very expensive loan to hold. You need to consider that you will need to keep making those repayments, even if you do not have a tenant in paying the rent for you. Therefore you will need to keep some money by to cover those payments in this circumstance. It is obviously worth comparing and trying to get the best rate, but it may still be so high that it is not worth borrowing.

If you can afford to buy a property outright, this is far better idea than getting one of these expensive mortgages. With interest rates low at the moment, they may not seem hugely expensive but while they are very low, there is only one way they can move and that is upwards. You need to consider whether you will still be able to pay the repayments as the interest rates go up. You may not be able to increase rent that much as you could risk losing your tenants to landlords who do not charge so much and so you need to be careful. Think about whether you still feel that the investment is worth it.

It is worth considering that the increase in value in the house should make the investment worthwhile. However, there is always a risk that the house will not increase in value or will not go up enough to cover your costs. This could depend on how long you are prepared to hold onto the property as the longer you keep up, the bigger the chance that it will increase in value and the larger the increase should be. Remember that you will need to pay for insurance, repairs, safety checks and possibly a letting agent as well and the rent that you charge will need to cover these as well as the mortgage repayment. It could be a lot to ask. It is best to make sure that you can personally cover all of this just in case you have no tenant in and decide whether you think it is worth the risk of investing in it. It can very well depend on the asking price housing market, rental market, likely rental income and how much income you have. There are a lot of factors to consider and if you take the mortgage out of the equation, by buying the house outright, you will have less risk as your costs will be a lot lower. It is likely that the house value will increase enough to cover those costs and you will have more of the rental income left as well to cover costs and possibly to give you some profit as well.

Should you Pay off your Debts Early?

Paying debts off early can feel really good. Knowing that you can get rid of the debt and no longer have to make those monthly repayments can mean that you are better off and free of the burden. However, it is not always best to pay your debts off early.

Some debts have what is called an early redemption fee. This is a charge made if you decide to pay off early. This can vary a lot between different types of borrowing and it can be very high. It is therefore worth checking to see whether the savings that you make from paying the loan off early are higher than the money that you have to pay out so that you can do this.

Some debts can be very low in interest. Things like a mortgage, although they may seem expensive, because the loan is spread over a long term, the rate can be lower than other types of lending. If you have a low rate, then it could be better to save or invest money rather than pay back the loan. Obviously you will still need to make the required payments or else you will be charged high fees, but you may not be wise to overpay and pay the loan off early. It could be better to invest the money you would have used to pay it off and you will get a higher return this way. This will all depend on how well your investment does though and so there will be an element of risk. You will have to decide whether you are prepared to take on this risk or not.
A student loan may also not be worth paying off early. In the UK, repayments are low and are taken out as part of a graduate’s tax rate. This means that it does not affect their ability to borrow as this is normally based on their gross salary (i.e. before tax is taken into account). It is also only charged once they earn over a certain amount and is written off after thirty years. Therefore at the moment, it is best to only pay what you have to as you may find that you will never have to pay back the full amount.

Some people worry that if they pay off their debt early, they may be short of money and need to borrow again. However, as a debt is so expensive (in most circumstances) it is best to pay it off if you can and if you do get short of money in the future then you can borrow. You may find that you do not need to borrow after all and will have saved all of that money, which will make a huge difference.

Most debts are very expensive and it is worth paying them back early. By paying them early you are likely to save a lot of money as interest is charged for the amount of time that the loan remains unpaid. There is also a burden associated with being in debt and not having any loans can make you feel really free. It will also mean that you will be able to start saving money, investing it or you will be more easily able to borrow money should you need to in the future. Although getting debt free may feel like the best way to be, if you want to buy a home, you may need to get a mortgage or you may need to borrow for another reason. If you already have already have a lot of debt, you may find that no one will want to lend to you. It will have an effect on your credit record and could mean that lenders see you as a big risk to lend to and therefore are reluctant to do so. So some debts can be worth having, they may be the only way that you can get something that you want and they may even be able to save you money in the long run. However, paying as little as possible for a debt makes a big difference and so if you can pay it back early and avoid a lot of interest repayments, you would massively benefit in the long term with regards to the state of your finances.

Is Interest free Credit Always a Good Thing?

Interest free credit can sound like a fantastic idea. The fact that someone is willing to lend you money for nothing can sound great. This can happen in various circumstances and it is worth being careful in all instances as there is often a catch, as we all know there is no such thing as free money.

Interest Free Credit Card

There are a few things to watch out for with an interest free credit card. Although they can be very good, you do need to be very careful with them. Firstly, they may have a charge for balance transfers so it may not be worth transferring your money across from another credit card to this one as it could end up being more expensive.
Check the figures and costs first. Secondly, once the interest free period ends there will be interest to pay. It is wise to put money aside to pay of the card just before this interest starts so that you do not have to pay it. This interest rate can be higher than on standard cards and so it is worth considering whether it really is worth taking out the interest free card, as you may end up paying more in the long run if you do not pay it off quickly. However, if you are able to pay the card off before the interest period kicks in and get a free balance transfer or just use it for purchases, you could gain a lot from it, particularly if you put the money you would have used to pay off your balance each month into a savings account and get some interest.

Car Loan

Some dealerships will offer interest free credit on cars. This means that you can buy a second hand car, spread the cost over a period of time and not pay any interest. Although this sounds like a really good deal, it is worth making sure that the cost of the cars are not really high as a result. It could be that the dealer adds the cost of the finance into the price of the cars and it could be cheaper to buy elsewhere.

Catalogue Purchases

Many catalogues allow you to pay for your purchases over a period of time rather than having to pay for them all at once. This spreads the cost and can make things more affordable. However, it is worth noting that, as with the cars above, the items could be more expensive. It could be better to save up and buy elsewhere, where the prices are lower.

Buy Now Pay Later

There are some shops that offer a buy now pay later scheme and credit cards do the same thing. This means that you get a small amount of interest free borrowing, perhaps a few weeks or maybe longer. Although these mean that you can buy things when you may not be able to afford them and then pay for them when you can, there is a risk. You could find that you will end up spending more than you can afford because you forget that you have to pay for the things later. You may not have as much money as you had predicted you would, when the time comes to pay and you could therefore be in trouble.

With all loans there is a risk that you may not be able to afford to pay off the balance when you need to. An interest free loan can seem even more attractive than other types and you may be tempted to borrow more money than you can afford to repay.
Make sure that you are not just buying things because they are on interest free credit rather than actually buying things that you need. Interest free credit is often used as a way to tempt people to spend more than they can afford so make sure that you do not fall for this. It is worth making sure that you are aware of how much you will need to repay and when you will need to pay it so that you can be sure that you will have enough money to be able to do so. Also make sure that you are getting the best value for money and are not overpaying for what you are buying.