Buy to let advice

Terri00

Hi,
I am new on the boards and just after a bit of advice.
I am looking to get a buy to let mortgage in the very near future. The advisor I spoke to advised that I go for an interest only mortgage if I am going for buy to let.
Am I right in understanding if i get this at the end of the mortgage I still have to pay the leftover in one lump sum?. If i couldnt afford this would I have to sell up. I was looking at getting a BTL property as an investment for my pension and for my daughter (she is 2 now)
At the time i thought the advisor made sense but as I am looking into it more I am wondering if it is a good idea. I dont want to have to pay it all back and be broke at the end of it all.

In your opinions what would be the best thing to do if i was getting buy to let, would it be inerest only as you advised or would it be better to go for an interest and repayment mortgage

Im sure i have lots of other questions coming but this will do for now

Thanks

Terri
xxx

PasturesNew

Yes, an interest only mortgage means you never repay a penny of the original loan until the last day, at which point you have to cough up the whole lot in one go.

However, over the life of that mortgage things will change, you might remortgage and borrow more, you might decide to pay a lump sum off (unlikely), but you should be at least saving the money in a separate savings account under your name with a view to using that to pay the money off at the end.

Or, at the end, sell the property to pay the mortgage off.
Or, sell the house at that point to your daughter so she takes on the mortgage and continues to run it and you get the cash to repay the mortgage.

However, with all due respect, if you are thinking of going into BTL and you don't know the answer to this basic finance question, I would suggest you look at the whole financial model of borrowing vast sums for a BTL in the first instance.

A BTL is a business. With associated risks. And now would not seem a good time to start such a business.

Terri00

Thanks for getting back to me,
it is what I thought I just wanted go research and gather advice before I did anything rash.
I was looking to possibly go into it at the end of this year but decided I would do lots of research now and save up more for a deposit.
This site is my first port of call

Terri
xxx

Doozergirl

IO in the way your mortgage advisor suggests means you're looking for prices to rise so that when you sell up you keep the change after the mortgage is paid off. That isn't really what an IO is for. You should have another investment vehicle which you anticipate will pay off the loan before or at the end of the loan. It also suggests that the rent won't cover the capital repayment section of the mortgage and so it means you avoid paying anything out of your pocket. A decent BTL will pay the mortgage off for you in it's entirity.

If you want a pension, then you really want your tenants to be paying off the mortgage in full so that in 25 years time you can choose whether to use the income or whether to sell up and enjoy the full proceeds of the sale, minus tax of course. IO means you only have the option to sell, find the full amount you borrowed in the first place, or mortgage the property again. Your mortgage adviser is a bit wreckless to be honest.