Short-Term Mortgages

When you think about mortgages, the first thing that often comes to mind is having a loan that will take around 25 years to pay back.

But if the idea of being tied to paying off a mortgage over such a long period doesn’t appeal to you then a short-term mortgage loan could be the solution.

As with all types of mortgages, short-term mortgages have benefits and limitations, so we’ve created a comprehensive guide to what you should know about short-term mortgages in the UK.

What is a short-term mortgage?

In the UK the length of a mortgage varies between providers. Though typically a mortgage lasts for around 25 years, you can get longer mortgages over 40 years.

At the other end of the scale, short-term mortgages can be for as little as six months to two or five years. Lenders have their own minimum terms which vary from no minimum to a 15-year minimum.

The mortgage term cannot be less than the term of the product.

Why do people take out short-term mortgages?

There are several reasons why someone may want to take out a mortgage that’s short term. Here are the main ones:

1. Age –
   If you’re older, possibly retired or soon to be retiring, traditional lenders may not offer you a mortgage as you’ll no longer be receiving a regular income. If that’s your situation, a short-term mortgage allows you to buy a property as the lender will think it’s less risky to only lend money for two years.
2. Delay in selling a current property –
   A short-term mortgage can give you the freedom to buy a new home whilst you’re waiting for your current property to sell. This would become a short-term second mortgage.
3. Own quickly –
   The more you pay each month, the quicker the loan is paid off and the quicker you’ll be the owner of the property. Also, the amount of interest paid is less over a shorter term, so the cost of borrowing is less. So if you’re keen to own quickly (and don’t have the capital to buy a property outright) short-term mortgages can be a good alternative.

Can I get a short-term mortgage loan?

Anyone who meets the criteria set out by the lender can apply for a short-term mortgage.

The key thing lenders want to know is that you can afford to pay back the loan but they will also factor in your age, current earnings and credit history before they make you an offer.

What types of short-term mortgage are there?

Just like the different types of long-term mortgages available, short-term mortgages are offered with different terms. As the amount borrowed is paid back over a shorter term, the monthly payments will be considerably higher.

You can find out more in our guide to different mortgage types or read on for further information.

Short-term interest-only mortgages

With a short-term interest-only mortgage, the borrower is only required to pay off the interest each month. The full loan amount is not due until the end of the term.

This can be a solution if you’re keen to get on the property ladder and have finances invested elsewhere. This could serve as capital to pay off the mortgage debt at the end of the term. It’s wise to take advice from an expert to ensure that your repayment vehicle will provide the necessary funds when you need them.

Make an enquiry and we’ll match you with one of the experts we work with.

Short-term fixed-rate mortgage

With fixed-rate mortgages, the interest rate you pay tends to last for two, five or ten years, so for a short-term mortgage, you should be able to get a fixed rate depending on your overall circumstances.

Short-term tracker mortgage

Again, you can get a tracker mortgage – which comes with interest rates that are usually in line with the Bank of England’s base rate – that lasts for two, five or ten years but it’s best to discuss whether this is the right type of mortgage for you with a broker.

Short-term offset mortgage

Offset mortgages are products that are tied to the borrower’s savings account. The interest payable is usually less, as it is calculated based on the mortgage balance minus the amount held in the linked account.

They are typically quicker to pay off than traditional mortgages so already tend to be shorter in term. It’s possible to take out a specifically ‘short-term’ offset mortgage but as it’s a specialism you’ll get the best access to deals from a whole-of-market broker, like the ones we work with.

Call 0330 818 7026 or make an enquiry. The experts we work with have access to all the mortgage lenders in the UK. They’ll be happy to answer your questions and find the right mortgage for your needs. The service we offer is free, there’s no obligation and we won’t leave a mark on your credit rating.

What are the benefits of a short-term mortgage?

Several benefits make short-term mortgages a good idea:

• Rates – One of the common concerns about mortgages is that interest rates may change. If you have a fixed-rate mortgage you can’t benefit from any potential lower rates. However, if you’re only tied to a contract for two years, which is the typical length of a short-term mortgage, you don’t have to worry about this.
• Flexibility – Self-employed and small business owners often prefer a short-term mortgage if they can afford one at the current time and are concerned that their income in the future may decrease. Knowing you can pay off a mortgage in a couple of years can make home-owning much easier.

There may be additional benefits, depending on your situation. For example, if you’re paying lower interest rates, you might be able to make more savings but on the other hand, as you’re paying off more of your loan each month it may not be the case.

The best way to know what the personal benefits are for you is to speak to an expert mortgage broker who will look at your situation and advise the best approach for you.

Call 0330 818 7026 for a free, no-obligation chat or make an enquiry and we’ll match you with an expert broker for free.

Short-term mortgage vs long term

Short-term mortgages tend to work out cheaper than long-term mortgages. And, although your repayments will tend to be far higher, you won’t be saddled with mortgage payments for very long because you’ll pay the debt off quicker.

The downside of a short-term mortgage is that you’re more likely to feel the impact if the interest rate rises during the term of your loan.

While long-term mortgages work out to be more expensive in the long run, the monthly payments will be cheaper than you would have to pay on a short-term mortgage. Over the entire term of a mortgage, with the right kind of mortgage deal, you should be less affected by rate changes.

The fundamental downside of a long-term mortgage is that you’ll be saddled with the debt for a far longer duration than you would if you were able to get a short-term mortgage.

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

There are several things to consider to get the best short-term mortgage, the first is that not everyone will receive the same offers from the same lender.

Every mortgage application will be assessed on criteria. Typically speaking if you meet the criteria (age requirements, a reliable salary and a good credit history) you will find more lenders are willing to offer you a home loan.

If you don’t meet the criteria there will still be lenders who can assist but your choices will be more limited. For example, if you have bad credit, the list of lenders may be limited but, depending on the specifics of your credit problems, it may still be possible to get the mortgage you want.

Secondly, you should seek help from a broker – this is exactly what they are there to do: find you the best deals for your budget, circumstances and property preferences. We can help you find one, give us a call on 0330 818 7026 and we’ll connect you with one of the professional whole-of-market brokers that we work with.

Speak to a short-term mortgage expert today

Taking out a mortgage, even a short-term one, is a major financial decision, so it’s important you get advice from an expert first who can also answer any queries or concerns you may have.

As mentioned above most brokers will have some knowledge of short-term mortgages but you may want to go with one who specialises in short-term contracts.

Rather than spending time trying to find someone that fits the bill, call 0330 818 7026 or make an enquiry. We’ll match you with an advisor experienced in arranging short-term mortgages.

They’ll be happy to answer all your questions and will save you time, money and hassle by making sure they match you with the lender with the right mortgage for you, the first time.

The service we offer is free, there’s no obligation and we won’t leave a mark on your credit rating.