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Not many people in the UK will tell you that they opted for the shortest-term mortgage available in the UK, and that’s because they’re not entirely affordable to every borrower.
That said, Brexit and an apparent lack of trust in the housing market from consumers are making the housing market a little unstable.
For the wealthiest investors, short-term mortgages provide some stability and investment protection – to a degree.
For most, now is the ultimate time to grab the chance of getting short-term fixed rates or short-term mortgages. Unfortunately, while most may want it, not all can afford it.
In this overview, we look at short-term mortgages, their benefits, the eligibility requirements and how they stack up against fixed-rate mortgages.
We also cover the benefits of fixed-rate mortgages and the eligibility requirements to apply for one.
What Are Short-Term Mortgages?
If you think about a short-term mortgage, what comes to mind? Most would think it’s a mortgage that’s held over a short period.
But most also think the mortgage amount is far less than a “standard” mortgage.
Here’s the truth. Short-term mortgages are “standard” mortgage amounts paid over a far shorter term than a standard mortgage.
Most people in the UK pay off a mortgage over what feels like a lifetime. Short-term mortgages are quite contrary.
If you’re looking for a short-term mortgage, they don’t get any shorter than 5 years.
This type of short-term mortgage is commonly selected by those who can pay high monthly instalments.
Of course, the reason behind this is to avoid interest.
Fixed-rate mortgages give borrowers peace of mind that they can plan effectively even with fluctuating rates.
Need more help? Check our quick help guides:
- Reasons why a mortgage could be declined on affordability.
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What Are the Benefits of Short-Term Mortgages?
If the idea of a short mortgage period scares you when you consider the size of your mortgage, you might wonder if there are any benefits involved for the borrower opting for one.
Of course, there must be viable and very high-value benefits to opting for short-term mortgages, or people wouldn’t put themselves under financial pressure.
One of the major benefits is that short-term mortgages minimise the interest payable.
It also helps to foresee how the fluctuating market will affect the property and financing.
For instance, predicting how the housing market will look in around 2 to 3 years is simpler, enabling investors to avoid the negative impact of market changes.
Eligibility Requirements for Short-Term Mortgages?
Are you eligible for a short-term mortgage, and if not, why not? Not everyone can afford to borrow a mortgage and pay it back quickly.
This type of mortgage is specifically aimed at those with a stable financial situation. And for these people, two eligibility requirements come into play:
- Enough equity.
- Enough capital.
Sounds simple, right? If you’re a wealthy investor, surely proving this affordability is simple, right?
Not quite!
You may think it would be a simple task to prove capital and equity in abundance, but it can be quite tough when a very short turnaround is required.
As such, it’s a mortgage option most often selected by wealthy individuals, landlords, and property developers.
Capital has either been gained through business or long-term life savings.
Why the switch from long-term mortgages to short-term mortgages for some? Is there a deeper underlying reason?
The reasons are pretty obvious, for those who have a good financial understanding, that is.
Long-term mortgages can frustrate borrowers, especially with all the required credit checks.
When short-term mortgages are in play, the tedious task of credit checks could possibly be avoided.
As short-term mortgages are paid off pretty quickly, lenders consistently don’t need to get updates on high equity borrowers.
As a result, short-term loans are the ideal option if you’re a high equity borrower interested in investing without accumulating debt.
That said, it’s evident that short-term fixed-rate mortgages are just as viable.
So what are short-term fixed-rate mortgages?
If you’re not familiar with these mortgage types, read on.
Short-Term Fixed-Rate Mortgages – The Benefits
What’s the drawcard when it comes to short-term fixed-rate mortgages? Is there one? It’s all about saving money in the long run.
When interest rates fluctuate, you will enjoy more stability if you have a short-term fixed-rate mortgage. Let’s take, for example, a mortgage that spans 35 years.
With this type of mortgage, you can select a fixed rate for a certain period that is usually available in 2, 3, 5 and 10-year increments.
Once the set fixed-rate period has lapsed, the borrower can agree on a new fixed rate term with the lender providing the funding.
You could remortgage too or transfer onto the standard variable rate offered by the lender. These fixed-rate periods protect the borrower from interest rate spikes.
It’s a good idea to discuss your financial situation and ideas with an experienced mortgage broker if you feel inspired to pay back your mortgage in a super short term or protect yourself from spikes in the interest rate.
Eligibility Criteria for Fixed Rate Mortgages
Fixed-rate mortgages have eligibility requirements varying from one lender to the next.
These include:
- Borrowers applying must have a good credit record.
- Applicants must be financially stable – and prove affordability.
- Applicants must be between the ages of 25 and 85 years old.
- The minimum annual income of the applicant cannot be less than £25,000.
- Applicants must be able to put down a 25% deposit.
- The property in question must show obvious potential value and be suitable for renting out.
A word on deposit sizes: While the average requested deposit is 25% on short-term loans, some lenders ask for a 40% to 45% deposit. The larger the deposit that is put down, the lower the overall rates will be on the property finance. In addition, a higher deposit makes it easier for bad credit or no credit borrowers to get approved.
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- Mortgage repayments on a 300k a month mortgage
Shortest Term Mortgage Last Word
If you’re in the financial position to pay off your mortgage in five years, considering the various benefits of the shortest-term mortgages in the UK may be in your best interests.
Of course, you should consult a professional mortgage broker before making such a big decision.
Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.
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