Short term mortgage (Complete guide)
In this brief guide, we are going to discuss what a short term mortgage is and how you can get one.
Most mortgage terms are for between 25 and 30 years but you may be able to get short term mortgages.
Short term mortgages will, of course, mean your monthly mortgage repayments are much higher if you take a comparable mortgage for a much longer mortgage term.
There are some benefits to short term mortgages but there are also a lot of disadvantages which you may want to consider before taking on a short term mortgage.
What is a short term mortgage?
A short term mortgage is a mortgage which has a shorter term than typical mortgages. A typical mortgage will usually have a mortgage term of between 25 and 30 years.
A short term mortgage can be as short as 6 months and can go up to 5 years.
Not all mortgage lenders offer short-term mortgages as most mortgage lenders will have a minimum term on which they can offer their mortgage products.
Why do you want a short term mortgage?
There are a lot of reasons why you may want to take out a short term mortgage.
We will highlight some of these below:
- You may want a short term mortgage if you want to save on the interest repayments you may have to pay on your mortgage.
A shorter mortgage term will mean you are being charged interest for a much shorter time and hence the amount of interest you have to pay is much smaller.
You should be aware that shorter-term mortgages will mean that your monthly mortgage repayment will be much higher in comparison to a much longer mortgage term and this means you will need to pass the mortgage lenders mortgage affordability checks to prove you can afford the mortgage.
- If you want to own your property much faster then a short term mortgage could help you do this as you will be able to pay the mortgage in full over a shorter term if you can afford it.
- If you want to buy another property but haven’t been able to sell your property then a short term mortgage may be a good option for you.
- If you are a much older borrower than a short term mortgage may be your best chance of getting a mortgage as most mortgage lenders will have a maximum age for which they will offer a mortgage to borrowers.
A short term mortgage may be able t keep the mortgage term within your working years and prove to the mortgage lender that you will be able t afford the mortgage.
Benefits of a short term mortgage
Below are some of the main benefits of having a short term mortgage:
- If you are a director or self-employed then a short term mortgage may offer you some flexibility and give you some reassurance that you will be able to repay your mortgage in full before any unforeseen events may occur.
- Short term mortgages will cost you less interest over the lifetime of the mortgage in comparison to a comparable to a longer-term mortgage.
Disadvantages of short term mortgages
- The mortgage affordability checks for a short term mortgage may be much harder to pass and you may need to put down a sizable mortgage deposit.
- Short term mortgages will mean you have much higher monthly mortgage repayments and this could prove too strainful on your finances.
- Not a lot of mortgage lenders may offer short term mortgages and hence the mortgage rates may be much higher for these sort of mortgage products. You will, however, be able to access bridging mortgage products up to a maximum term and these may offer better rates.
- A lot of mortgage lenders may have minimum mortgage terms which are well beyond the term you are looking for for your short term mortgage.
- With short term mortgages, any interest rate rise could hit you much harder as the interest portion of your monthly mortgage repayments will be much larger than if it was a longer term mortgage.
Types of short term mortgages
There are various types of short term mortgages, some include:
Short term fixed-rate mortgages
A short term fixed-rate mortgage may be a mortgage which is fixed for the entirety of its term.
This could also simply be the introductory part of a standard mortgage which has a fixed rate for a term of between 2 and 5 years.
Short term fixed-rate mortgage may offer some certainties as you are sure your monthly mortgage repayments will not rise for a certain term.
With that being said, if interest rates did fall you will not be able to benefit and these kinds of mortgages usually have high early repayment charges which make them much more expensive to remortgage.
Short term tracker rate
A short term tracker rate mortgage is a mortgage which tracks the Bank of England base rate.
These kinds of mortgages could have terms from 2 years all the way to 10 years.
Short term interest-only mortgage
A short term interest-only mortgage is a mortgage where you do not make any capital repayments but simply make repayments toward the interest charges in the mortgage.
This may be very popular with buy to let investors who look to buy and sell properties within a short term and will like to reduce their short term mortgage costs.
You will need to have a capital repayment vehicle which you will use to repay the capital at the end of the interest-only mortgage and the mortgage lender will need to verify that this repayment vehicle is suitable.
Short term offset mortgage
A short term offset mortgage is a mortgage where the mortgage balance on your mortgage account is linked to a savings account(usually with the same mortgage lender) and used to offset the mortgage balance o which interest is charged on.
A short term offset mortgage account could allow you to repay your mortgage in a much faster time than conventional offset mortgages.
If you are interested in any of these mortgage products then you may want to speak to a mortgage broker who could advise you on the suitability of these products for you.
Should you get a short term mortgage or long term mortgage
Deciding if to get a short term mortgage or a long term mortgage is something you should consider and discuss with your mortgage broker.
Some of the key factors you take into consideration when deciding between the two are:
Your age: If you are a much older borrower then you may find it harder to get standard mortgage products from most high street mortgage lenders.
This may mean that you will need to consider mortgage lenders who will offer you a short term mortgage which you can repay whilst you are still working or in a much shorter time and hence reducing the risk to the mortgage lender.
The repayments: The repayments on a short term mortgage will be much higher than the repayments on a comparable longer-term mortgage. This means you must ensure that you are able to keep up on your monthly mortgage repayments before taking on such a mortgage.
The good thing about short term mortgages is that you will pay them off quicker whilst with long term mortgages you will have to carry that mortgage debt for a much longer time.
How can you get a short term mortgage?
As with all mortgages, the mortgage lender will assess your mortgage affordability to ensure you can afford the monthly mortgage repayments.
Each mortgage lender has their own criteria on what they will be looking for and hence this is just a brief overview.
Your mortgage deposit: You will need sufficient mortgage deposit to be able to get a short term mortgage The minimum mortgage deposit requirement is 5% but this may be much higher from some mortgage lenders.
Your credit score: You will need to have a good credit score in order for most mortgage lenders to offer you a mortgage.
If you have bad credit you may still be able to get a mortgage but you can expect to be required to put down a bigger mortgage deposit and have higher mortgage rates.
Bad credit could include:
- Missed credit repayments
- County court judgements
- Late credit repayments
- Debt management plans
- Home repossessions
Use a short term mortgage broker
You may want to consider using an independent mortgage broker to get a mortgage.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.
Short term mortgage calculator
You can use a short term mortgage calculator to see what your monthly mortgage repayments may be but you should note that the calculations from a short term mortgage calculator are just for guidance and may not reflect your true mortgage affordability.
What mortgage lenders offer short term mortgages?
Marsden building society has launched a short term mortgage. Mr Robinson head of lending at Marsden building society said “We were finding many intermediaries looking for options for their clients who are in the process of buying and potentially need a short-term mortgage.
“This is a new initiative that we’re trialing in the market and welcome feedback from brokers and their clients.”
“The product has a maximum of 2-year product term and is available on interest-only up to 60% LTV. It’s a variable rate of 5.24% with a £299 booking fee and a £1,200 arrangement fee (can be added to the mortgage)”
The product also has no early repayment charges which mean borrowers can walk away from it at any time.
FAQs: Short term mortgages
Below are some of the most frequently asked questions about short term mortgages.
What is a short term mortgage loan?
A short term mortgage loan could be classified as any mortgage which is less than ten years old. Normal mortgages usually last from between 25 and 30 years.
What is the minimum term for a mortgage?
The minimum term for a mortgage will differ from one mortgage lender to another so if you want a short term mortgage you should speak to a mortgage broker who may be able to advise you accordingly.
Is it better to have a longer or shorter mortgage term?
Whether it is better to have a longer-term or shorter-term mortgage will depend completely on your personal circumstances and mortgage affordability.
Longer mortgages take longer to pay off and short term mortgages will be paid off in a much shorter time but there are other things which you should consider.
Can you get a short term mortgage loan?
Yes, you can get a short term mortgage loan if you meet the mortgage lenders affordability requirements and can prove that you will comfortably be able to make the monthly mortgage repayments.
Can you get a short term holiday let mortgage?
Due to the fact that holiday lets are properties which may have seasonal demand you may find that there are only a fewer number of mortgage lenders who offer this kind of mortgages.
Finding a short term holiday let mortgage is not impossible but you may need a specialist mortgage lender to assist you in doing this.
Can you get a short term commercial mortgage?
Most commercial mortgage lenders have a minimum mortgage term of 3 years and this means anything below this will be considered a commercial bridging loan.
Depending on your needs there are mortgage lenders who may be willing to lend to you and your commercial mortgage broker may be able to help you assess these mortgage lenders.
Can I get a short term mortgage for commercial property development?
Depending on how long you want your mortgage term to be there may be many better-suited products which are available to you such as development finance or a bridging loan.
You should speak with a commercial mortgage broker to fully access your mortgage options.
Can you remortgage a short term mortgage?
Yes, you may be able to remortgage aa short term mortgage but this may not necessarily be the best mortgage option for you.
You should discuss your options with your mortgage broker.
What is a short term bridge loan mortgage?
A short term bridging loan mortgage is a mortgage which you may use to bridge between transactions or use as development finance.
Self-build mortgages are by default short term in nature and are offered to borrowers who are looking to build their homes.
If you need a much shorter mortgage term then there may be other finance options which are suited to you.
Can a pensioner get a short term mortgage?
Yes, pensioners may be able to get short term mortgages as long as they are able to prove their mortgage affordability to the mortgage lender.
Can you get a short term buy to let mortgage?
Due to services such as Airbnb, most mortgage lenders will now offer short term buy to let mortgages
In this brief guide, we are going to discuss what a short term mortgage is and how you can get one.
If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.