How do you work out the pay rates on a buy to let mortgage?

Posted on 1 February 2008

How do you work out the pay rates and rental income % on a buy to let mortgage when it says 125% rental income? Paul

Hi Paul,

The pay rate is the interest rate that your broker or the www.charcol.co.uk search has given you,  then you work out the monthly interest which is:

(loan x interest rate) divided by 12

After that you multiply it by 125% to find the rental cover. So for example: if you wanted to borrow £140,000 and the rate was 5.8% with a 125% rental cover you would do 140,000 x 5.8 /100 = £8,120 then divide by 12 to get the monthly interest amount = £676.66 (this will be your interest only mortgage payment)

So 125% coverage would be £845.83, this is what you need to get as monthly rent.

Category: Buy-to-let

 

Answers provided in response to Ask Bea are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not neccessarily represent the views, positions, strategies or opinions of Charcol Limited. All comments are made in good faith, and neither Charcol Limited nor Bea will accept liability for them.

We recommend you seek professional advice with regard to any of these topics where appropriate.

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