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Mortgage Glossary
Repayment of Buy to Let Mortgages
 
Buy to let mortgages have become very popular amongst people who ask for mortgages. This type of mortgage is used when a person buys a flat and rents it to another person. In other words, the person becomes a landlord and he will make his monthly payments from the rent money. Of course, a buy to let mortgage can be used in several other ways, this was only an example.

People should consider buy to let mortgages as long term investments.
But everyone who considers a buy to let mortgage should be aware of the risks: the value of a property can raise but can also fall in time! This type of mortgage has a wide repayment period. Considering the amount borrowed and the financial possibilities of the borrower, the repayment period can be between 5 and 25 years. Also, the amount of money taken can be somewhere between £ 35.000 and £ 1.000.000, depending on the property value. But the most interesting part is about the repayment options. One can choose between a fixed rate mortgage and a flexible one. Let us discuss these two types of repayment!

Fixed rate mortgages offer some stability. In this case the lender and the borrower agree on a fixed interest rate. This offers stability and safety to the borrower, because he does not have to be afraid of rising interest rates. During the period of agreement the lender is not allowed to change the interest rates. The most popular periods for fixed interest are two, three or five year deals. People should take into account that the longer they fix their mortgage rates, the higher interest they will pay.
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Another advantage of fixed rate mortgages is that the debtor will pay the exact same amount month after month, so he will always be aware of the amount of money ha has to transfer to the lender. But this type of repayment also has disadvantages: if the interest rates fall during a fixed rate period, people will feel disadvantaged, because others will pay less money but they still pay the same amount. Also, there is a fee for fixing the mortgage rate. This varies from one lender to the other, but people should prepare to pay at least £ 500 extra.

The other type of mortgage repayment is flexible. As its name suggests, this type of repayment is really flexible, and it allows a lot of things like overpay, underpay, take payment holidays, and borrow back the overpayments. These look very good, what is the deal with flexible repayments? Are they as good as they look like? There is a category of people who can use flexible repayments: the self-employed or any other group with a fluctuating income. Used correctly, this type of repayment allows the debtor to save a big amount of money. Although it seems simple: the debtor makes overpayments when he has extra money and underpayments when he lacks money, it is not that simple in reality, because most of the people cannot deal with their money properly. A downside of flexible mortgages is that they not always come with the lowest interest rates. After all, people have to pay for all the extra services. Choosing this repayment plan makes it harder to the borrower because now he will pay as much as he can, not a fixed amount every month, like in the case of fixed rate mortgages.

The two different repayment plans are designed for different types of people, but there are middle categories too, which combine some elements of these two mortgages. People should consider their options and capabilities before they choose a repayment plan and plan their finances accordingly.