Although borrowing over the shortest term is generally ideal, in the real world, it may not be feasible to do so. In this guide, we will explore the various mortgage terms available and the advantages of opting for a shorter term mortgage.

What is a short-term mortgage

Most mortgage lenders have set limits on how long they will lend money for, with the earlier of the client’s stated retirement age or age 70-75 being the cutoff point. The maximum mortgage terms available are usually 35-40 years.

One of the advantages of choosing a longer mortgage term is that it will result in lower monthly payment. It is important to keep in mind that the longer the term of your mortgage, the more interest you will end up paying in the long run.

While it is possible to find mortgage terms as short as two years, the more common minimum term is five years. 

Why do people take out short-term mortgages?

They are of an advanced age

One of the most common reasons is that they want to pay off their mortgage faster and become debt-free sooner. 

This is often the case for people who are approaching retirement age and want to reduce their financial obligations before they stop working. By choosing a shorter term mortgage, they can make larger monthly payments and pay off their debt in a shorter amount of time.

They want to own their home sooner

Some people may choose a shorter term mortgage because they want to save money on interest charges. 

Shorter term mortgages often come with lower interest rates than longer term mortgages, which means that borrowers can save money on interest charges over the life of the loan. 

This can be particularly beneficial for those who are able to make larger monthly payments and pay off their mortgage faster.

They want to build equity faster

Another reason why someone might opt for a shorter term mortgage is to build equity in their home faster. Equity is the difference between the value of your home and the amount you owe on your mortgage. By paying off your mortgage faster, you can increase the amount of equity you have in your home, which can be useful if you plan to sell your home in the future or take out a home equity loan.

Can I get a short-term mortgage loan?

When it comes to choosing a short term mortgage, affordability is a key factor to consider. While shorter terms may offer the advantage of paying off your mortgage faster, they also come with higher monthly payments. As a result, lenders will typically require a higher level of affordability from borrowers seeking a shorter term mortgage.

Affordability is determined by a number of factors, including your income, expenses, credit score, and existing debts. Lenders will typically evaluate your affordability by looking at your debt-to-income (DTI) ratio, which is the amount of debt you have compared to your income. 

With a shorter term mortgage, lenders may require a lower DTI ratio to ensure that you can comfortably afford the higher monthly payments.

Speak To an Expert

Whether you’ve just had an offer accepted on a property and you’re ready to go, or you’re simply wondering how much you need to save for a deposit, it’s never too soon to reach out.

based on 152 reviews on for Strive Mortgages
js_loader

What types of short-term mortgages are there?

Short term interest only mortgage 

If you are looking to keep your mortgage payments as low as possible, a short term interest-only mortgage may be worth considering. With this type of mortgage, you will only be required to make payments on the interest portion of the loan, rather than paying both interest and principal. This can result in significantly lower monthly payments,

Short-term fixed-rate mortgage

Shorter fixed-term rates are typically available for a minimum of 2 years, but can also be found for 3 and 5 years. This means that borrowers can lock in a specific interest rate for a set period of time, which can provide peace of mind and help with budgeting.

Short-term tracker mortgage

Typically, tracker products come in different time durations, ranging from 2, 3, or 5 years to an entire lifetime. These products are designed to track the performance of an underlying financial index or benchmark, providing investors with a cost-effective way to invest in the market.

One of the key benefits of tracker products is that they typically have low or no early redemption fees. 

What are the benefits of a short-term mortgage?

Short-term mortgages can offer a variety of benefits, depending on your financial goals and situation. Here are some potential advantages of opting for a shorter-term mortgage:

  • Pay less interest: Short-term mortgages typically come with lower interest rates than their longer-term counterparts. This means that you’ll pay less interest over the life of your loan, potentially saving thousands of dollars in the process.
  • Clear the mortgage quicker: With a shorter-term mortgage, you’ll be able to pay off your loan more quickly than you would with a longer-term mortgage. This can help you achieve financial freedom and security sooner, allowing you to focus on other goals like saving for retirement or traveling.
  • Build equity faster: As you pay down your mortgage, you’ll build equity in your home. With a shorter-term mortgage, you’ll be able to build equity more quickly, which can be helpful if you’re planning to sell your home in the near future or want to use your equity to access other financial opportunities.
  • Qualify for a mortgage if you’re retiring soon: If you’re planning to retire soon, a shorter-term mortgage may be a good option for you. This is because lenders often look at your income and employment history when deciding whether to approve your mortgage application. With a shorter-term mortgage, you may be able to qualify for a loan based on your current income, rather than having to demonstrate income into your retirement which may be significantly lower. 

Short-term mortgage vs long term

Short-term mortgages typically come with lower interest rates, allow borrowers to pay off their loans more quickly, build equity faster, and may be easier to qualify for if you are retiring soon. 

However, they often come with higher monthly payments. Long-term mortgages, on the other hand, come with higher interest rates, take longer to pay off, and may not build equity as quickly, but they offer lower monthly payments. It’s important to consider your financial situation and goals when deciding which type of mortgage is best for you.

Examples 

In the scenario below an extra £119,631 interest it payable when borrowing over 25 years compared to 5, however the monthly payment is £3,251 more expensive. A large income would be required to secure a mortgage of this value over a shorter term. Standard loan to income multiples may not apply. 

  •  £200,000 mortgage 

4% interest rate 

  • 5 years – £4,604 per month 

£276,246 total repayments and interest 

  • 10 years – £2,531 per month 

£303,735 total payments & interest 

  • 15 years – £1,849 per month 

£332,859 – Total payments & interest 

  • 25 years – £1,351 per month 

£395,877 – Total payments & interest

How can I get the best short-term mortgage rates?

If you decide to secure a mortgage over a shorter term, you may encounter some challenges in the process, for example more stringent affordability requirements.

However, working with an experienced mortgage broker like Strive Mortgages can prove invaluable in securing a mortgage with favorable terms. Working with a mortgage broker who specialises in arranging mortgages over a shorter term that has the expertise and industry knowledge necessary to guide you through the process and increase your chances of success. 

We help you navigate the complex and often confusing world of mortgage lending and ensure that you find a mortgage that meets your unique needs and circumstances. By working with a skilled mortgage broker, you can save time, reduce stress, and ultimately secure a mortgage that is right for you.

For more info on short term mortgages, please contact a member of the Strive team, by emailing info@strivemortgages.co.uk or call us on 01273 002697.

Frequently asked questions on short term mortgages

How does short term lending differ from a bridging loan?

A short-term residential mortgage is a loan that allows you to purchase a property with a traditional mortgage with a shorter repayment period. 
In contrast, short-term bridging finance is a type of loan that is typically used to bridge the gap between the purchase of a new property and the sale of an existing one. It is often used in situations where funds are required quickly, and the repayment period is typically around 12 months or less. Bridging finance usually attracts significantly higher initial fees and interest rates.
When it comes to residential mortgages, lenders typically base their decision on your personal affordability, taking into account your income, expenses, credit history, and other factors. In contrast, bridging finance is usually based on the value of the security being used to secure the loan, such as a property or other asset. This means that the lender will focus more on the value of the security rather than your personal financial situation when considering whether to approve the loan.

Is it possible to get a short term on a buy to let mortgage?

Yes, it is possible to get a short-term buy-to-let mortgage. Like with traditional residential mortgages, buy-to-let mortgages can also come in various terms, including short-term options. 
Short-term buy-to-let mortgages are typically used for investment properties that the borrower intends to sell or refinance in the near future. These mortgages can have repayment periods of less than five years and may have higher interest rates than longer-term mortgages.

What are the best short term mortgage deals?

The availability of the best short-term mortgage deals will ultimately depend on your individual circumstances. If your financial situation is limited in terms of affordability, you may find that borrowing over a longer-term period gives you more options to choose from. 
However, it’s important to weigh the pros and cons of both short-term and longer-term deals to determine which option is best suited to your specific needs.

What are the best short term mortgage deals?

The availability of the best short-term mortgage deals will ultimately depend on your individual circumstances. If your financial situation is limited in terms of affordability, you may find that borrowing over a longer-term period gives you more options to choose from. 
However, it’s important to weigh the pros and cons of both short-term and longer-term deals to determine which option is best suited to your specific needs.

What are the best short term mortgage deals?

The availability of the best short-term mortgage deals will ultimately depend on your individual circumstances. If your financial situation is limited in terms of affordability, you may find that borrowing over a longer-term period gives you more options to choose from. 
However, it’s important to weigh the pros and cons of both short-term and longer-term deals to determine which option is best suited to your specific needs.

Are short term self build mortgages available?

Yes, self-build mortgages are available over shorter terms. The repayment periods for self-build mortgages can vary depending on the lender and your individual circumstances, but typically range from 6 months to 2 years. 
Shorter-term self-build mortgages may have higher interest rates compared to longer-term options, but they can provide more flexibility and control for borrowers looking to complete their project quickly

Are there short term mortgages for pensioners?

Short-term mortgages may be available for pensioners, but the availability and terms of the loan will depend on the lender and the borrower’s individual circumstances. 
It’s worth noting that some lenders may have age restrictions on their mortgage products, with a cap at age 75 or 80. This means that some older borrowers may have difficulty qualifying for a short-term mortgage, as they may not meet the lender’s age requirements.
However, lifetime mortgages may be an option for older borrowers who want to borrow in later life.