Buy-to-Let Mortgage Calculator: Compare and Remortgage

How the monthly payment is worked out

On a repayment mortgage each monthly payment covers that month's interest and pays off some of the loan, and the payment is set so the loan is cleared exactly at the end of the term. Early on, most of each payment is interest; towards the end, most of it is capital. On an interest-only mortgage the payment is just the month's interest, so it is much lower, but the whole loan is still owed when the term ends and has to be repaid from a sale, savings or a new loan. Most buy-to-let mortgages are interest-only for exactly that reason: the lower payment improves the monthly cash flow, and the property is the plan for the capital.

This calculator works month by month. Interest is charged on the balance owed each month, and whenever the rate changes the payment is worked out again from the balance then owed over the months then left, which is how a lender re-works it.

Comparing products

A rate on its own does not tell you which deal costs less. Three things change the answer:

• Fees. An arrangement fee can be paid upfront or added to the loan. Added to the loan, it does not leave your pocket on day one, but it is borrowed, so it is repaid with interest for the whole term. The result shows the cost of borrowing as interest plus fees, however the fee is paid.
• The initial period and what comes after. A fixed or tracker rate usually lasts for an initial period and then reverts to the lender's own variable rate. Enter that later rate and the calculator shows the payment both before and after the switch; leave it blank and it assumes the initial rate carries on, and says so.
• Trackers. A tracker is Bank Rate plus a margin. The calculator holds the Bank Rate you enter flat for the whole term: it does not forecast Bank Rate, so use the stress-test rate to see a rise.

Remortgaging

Switching usually lowers the monthly payment, but it has costs: arrangement and valuation fees, legal costs, and an early repayment charge if your current deal has not ended, offset by any cashback. The simple test is how many months of the lower payment it takes to cover those costs. The calculator also does the fuller test: each month it adds up the payments made, the cash paid on day one and the balance still owed under each deal, and finds the first month the new deal is ahead. A lower rate pays the balance down faster, which the simple test leaves out.

Worked examples

These figures were produced by running this page's own calculator, so they are exactly what it gives for the same inputs.

Two fixed rates on a £200,000 loan over 25 years

The shorter fix starts with the lower payment, but its fee is borrowed and its rate reverts sooner, so over the whole term it costs more. Neither deal is "the best": what matters is how long you expect to keep the mortgage and whether you would remortgage when the initial period ends, rather than letting it revert.

The same loan, interest-only

At 4.5% interest-only, the monthly payment is £750, but £200,000 is still owed at the end of the term.

Switching a £180,000 balance off a 7.5% rate

With 20 years left, the payment now is £1,450.07. A new deal at 4.6% would cost £1,148.51 a month, a saving of £301.56, against an arrangement fee of £999. Counting payments, cash paid and the balance still owed, the new deal is ahead from month 3, and after its 24-month initial period it is ahead by £9,352.71.

Common mistakes

• Comparing deals on the initial rate alone, ignoring fees and the rate the deal reverts to.
• Adding a fee to the loan and forgetting it is then borrowed at interest for the whole term.
• Reading an interest-only payment as the cost of the property: the capital is still owed.
• Judging a remortgage on the lower payment while extending the term, which can lower the payment and leave more owed later.
• Using an average quoted rate as your own: buy-to-let pricing is set separately and depends on the loan-to-value, the rent cover and the lender.

What this calculator does not cover

• Payments are worked out at the rates you entered: each rate holds for its stated period, and the rate after it holds from then on. Rates move in real life; the stress test is the way to see a higher one.
• Lenders' own calculations, product rules, early-repayment terms and fees can differ. Check every figure with the lender's illustration.
• Buy-to-let affordability checks, interest-cover tests, tax relief on interest and legal costs beyond the fees you enter are not modelled.
• Reference rates are optional averages of quoted household rates, never your own rate, and play no part in any calculation unless you click one into a field.