In this new financial environment, landlords need to look carefully at all the numbers associated with a loan. The headline interest rate may look attractively low, but lenders fees may not.
When a rate is fixed for 5 years or more the stress rate is calculated on the pay rate. In order to achieve a lower interest rate and therefore a higher loan advance lenders increase their arrangement fee.
Here are some scenarios using the same rental income to calculate the loan advance that can be achieved on a 5 year fixed rate, where different levels of interest rates and fees result in a very different financial outcome for investors.
|Rate||Arrangement Fee||Gross Loan||Monthly Payment||Net Advance|
The fees can sometimes frighten you away from a product but when you look deeper into the product and what it can achieve in terms of capital raise it could outweight the costs.