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Short Term Mortgages

Are you thinking of taking out a short-term mortgage but unsure about what they are and how to proceed? This simple yet informative guide will help you get the information you need.
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So, you’re thinking of taking a mortgage? Well, studies by various sources indicate that the UK mortgage market is at a high right now.

But if you’re still concerned about shouldering a long-term financial burden like a mortgage, then maybe you can think of taking out a short term mortgage

Short-term mortgages have the advantage of a shorter payment term, variable interest rates, and faster resolution times because of this.

Short term loans and mortgages can be future methods of choice for the younger generations as these offer a faster path to complete property ownership without a mortgage being registered on the property. 

In this article, we’re going to explain what short term mortgages are, their pros and cons, and also mention some lenders that offer short term mortgages in the UK. 

So, if you’re in the market for a short term mortgage, make sure you read till the end.

What Are Short-term Mortgages?

As the name itself suggests, short-term mortgages are loan agreements with shorter repayment periods compared to their long-term counterparts. 

These types of mortgages typically span anywhere from one to ten years. This makes them a preferred option for borrowers seeking expedited debt resolution and financial freedom.

Some of the reasons why customers typically prefer short-term mortgages are:

  • The ability to build up faster equity
  • Avail of lower interest rates based around a lower loan to value ration
  • Gain enhanced financial flexibility

For instance, if you’re taking out a mortgage for £250,000 at 4.50% for a period of 10 years, then your monthly repayment amount will be around £2600. 

While the monthly repayments will be higher, the total interest you’d end up paying would be around £60,000 which would be lower if the term were extended.

How Do They Differ From Long-Term Mortgages?

The primary difference between short and long-term mortgages is in their repayment terms. As mentioned above, short-term mortgages typically have repayment terms ranging from one to ten years.

In contrast, long-term mortgages can stretch anywhere between 15 to 40 years of repayment. And while this helps reduce monthly payments, the interest will be higher than that for short-term mortgages as you are repaying the capital for longer.

Considering the same loan amount of £250,000 as in the example above, and at the same interest rate, the monthly payments for a period of 20 years will be around £1600.

But the total interest amount that you’ll need to pay is around £130,000, which is more than double the interest for a short term mortgage.

At the end of the day, the choice between the two lies with you, the borrower. Short-term mortgages require greater financial discipline as the monthly payments are higher. 

Additionally, for short term mortgages will need to meet the lenders stricter affordability criteria.  

Long-term mortgages, on the other hand, help spread out the financial burden over a longer period of time. But they do require you to pay a greater amount in terms of interest.

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Types of Short-Term Mortgages

Now that we have discussed what short-term mortgages are, let’s take a look at the different types of short-term mortgages available on the market.

1. Fixed Rate Short Term Mortgages

This type of short-term mortgage has terms of anywhere between one and five years and ensures a fixed interest rate that remains constant throughout the payment term.

This facilitates consistent monthly payments, which allows borrowers to plan their budgets in advance.

2. Tracker Short-Term Mortgages

Tracker mortgages are usually linked to a specific base rate provided by the Bank of England. The actual interest rate fluctuates, keeping in line with the base rate fluctuation.

In this type, the advantage is that if the interest rates go down, borrowers benefit from a lower monthly repayment. 

But of course, there’s the possibility of interest rates increasing, which will lead to larger repayments and increased financial burden on the borrower.

3. Discounted Short Term Mortgages

This mortgage type offers a discount on the lender’s SVR (Standard Variable Rate) for an initial time period. As a result, borrowers get the benefit of lower primary payments before the actual SVR kicks in.

The discount period ranges anywhere between one to three years in most cases, after which the interest reverts to the standard rates.

4. Offset Short Term Mortgages

Offset short-term mortgages work by linking the mortgage balance to the borrower’s current or savings account balance. This helps to reduce interest payments by offsetting the savings against the debt.

Short-Term Mortgage Eligibility

In the UK, there are a requirements that are more likely to lead to approval for a short-term mortgage. These are as follows:

  • A 700 or above credit score on Equifax or Experian reports
  • A consistent & reliable source of income that allows you to pay back the mortgage
  • A low DTI (Debt-to-Income) ratio
  • A low LTV (Loan-to-Value) ratio

Please note that the specifics of these conditions can vary from lender to lender and also depending on the borrower’s profile.

Which Lenders Offer The Shortest Mortgage Terms In The UK?

As you’ve probably understood by now, short-term mortgage periods usually vary from lender to lender, as do the conditions of the loan. While such mortgage terms usually start from five years or more, the following lenders offer terms as low as 1-3 years:

  • Halifax Mortgages
  • Nationwide Mortgages
  • NatWest Mortgages
  • Lloyds Bank Mortgages
  •  TSB Mortgages

Disadvantages Of Short Term Mortgages

Now it’s time to look at the other side of the coin when it comes to short term mortgages. These mortgages come with the following disadvantages as well:

  • Larger monthly payments can strain your monthly budget
  • It leaves you with less cash in hand for emergencies 
  • The amount you’re eligible for might be lower in the case of short term mortgages than for longer term mortgages

At the end of the day, the choice is up to you and your financial habits and income stream. 

Frequently Asked Questions (FAQs)

1. Is It Possible To Get A Short-Term Self-Build Mortgage?

Self-build mortgages are a special kind of mortgage aimed at customers who want to build their homes themselves. These are usually offered in the short term, and the borrower can refinance the mortgage into a traditional residential mortgage once the work is done.

2. Can Pensioners Get Short-Term Mortgages?

Yes, you can get a short-term mortgage even if you’re a pensioner. In fact, lenders prefer to give short-term mortgages to pensioners in most cases as this ensures that the payment is completed faster. Do note that you’ll need to prove that you can pay back the loan in full before approval.

3. Can A Short-Term Mortgage Be Remortgaged?

Technically, a borrower can remortgage any type of mortgage. But it’s usually better not to take that route with short-term mortgages, as the remortgage fees might be costly and of course an extension to the term will result in it being repaid more slowly.

4. What Are Short-Term Bridge Loan Mortgages?

These are mortgages used as a stop-gap method to buy a house, with the plan to refinance the debt as a residential mortgage after the term ends or another method of refinancing. To learn more about such mortgages, you can refer to this guide on Bridge-To-Let mortgages

George Rogers LendingLine
CeMAP & CERER Qualified Mortgage Adviser

I am CeMAP & CERER qualified mortgage adviser and have helped a number of clients realise their dreams when they thought it would not be possible. I’m skilled at getting mortgages sorted for people with a history of missed payments, CCJs, defaults, debt management programmes, IVAs and bankruptcies.

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Are you thinking of taking out a short-term mortgage but unsure about what they are and how to proceed? This simple yet informative guide will help you get the information you need.
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