What Is A Mortgage Term?

The process of buying property can feel very complex. There is a wide range of different elements to consider – and many will have a significant impact on your finances, so it’s important to take great care. So what is a mortgage term, we explain below.

One of the most vital aspects you will need to explore is your mortgage. If you require finance to complete your purchase, as a great many do, you must make sure that the loan you choose is suitable for your specific set of circumstances.

Mortgages vary from lender to lender, with many different products available from each provider. The key aspects of a mortgage include:

• The size of the deposit required
• The mortgage term
• Whether the product is to be repaid at a fixed or variable rate

Of course, there are many other facets besides – many of which depend on the specific product you select. However, the three above are the central components that will broadly determine how your mortgage works, as well as the amount you’ll need to repay per month.

In this article, we are examining the second of those elements: What is a mortgage term? Is it affected by the amount you can borrow – and is there any room for flexibility? We discuss all of these points and more below to help you better understand the nature of a mortgage term and its impact on your property ownership and repayments.

What Is A Mortgage Term? The Basics

A mortgage term can be defined in the most straightforward language as “the period over which the remainder of a property finance loan is to be repaid”.

We say “remainder”, because a certain amount of the overall price of your new property will already be accounted for once the deposit has been paid.

When you discuss mortgage terms with a broker or lender, you’ll be talking about how long it will take until your entire mortgage has been paid off and the property is completely your own.

Mortgage terms are not to be confused with mortgage rate terms – otherwise known as mortgage deals. As mentioned, the former refers to the length of the entire repayment process, while the latter refers to the amount of time your current arrangement lasts.

For example, a fixed-rate mortgage is usually set up to terminate after between two and five years, although some lenders can offer upwards of seven years. This is the “mortgage rate term” or “mortgage deal”.

Once this set period is over, you will need to arrange another mortgage rate – or default to the current variable rate. This process will continue in increments until your entire loan is repaid.

The overall amount of time this takes is your “mortgage term”.

How Long Is A Mortgage Term?

While the period over which a mortgage loan may be repaid can vary, most lenders offer similar sets of options.

The most popular mortgage term option is 25 years. 35 years is also common and is usually the maximum that mortgage lenders allow. However, there are some providers that will approve mortgages of up to 40 years in length. These are known as “extended mortgages”.

Because these longer repayment terms are considered riskier, lenders often introduce an age cap – although this is commonly as high as 75. It tends to be more difficult to be approved for a 40-year mortgage, as providers require assurance that the borrower’s income will be sufficient to cover the full amount with interest.

At the other end of the scale, some organisations are able to offer mortgages of as little as two years in length.

These very brief terms are often used in place of a bridging loan and may be required when waiting for an existing property to sell, or buying at auction.

Are Mortgage Terms Affected By How Much You Can Borrow?

The size of your loan will not usually affect the term over which it is repaid. However, there are other factors that may render certain mortgage lengths more or less sensible within your specific circumstances.

For example, your current age and financial position may suggest that a longer or shorter term may be preferable.

A longer-term mortgage will mean being in debt for a larger portion of your life and will command higher interest payments. A shorter-term mortgage will mean that your repayments themselves will be higher, but there will be less interest to pay and it will be repaid more quickly.

Of course, the value of the property you are purchasing should also be taken into account – as you may be able to afford a more expensive home by taking out a longer-term mortgage. You simply need to be prepared for the downsides of doing so.

Can You Extend A Mortgage Term?

It is usually possible to extend the term of your mortgage. The most common reasons for doing this include a need to reduce the amount repaid each month, or the end of an interest-only mortgage approaching.

The latter depends on whether the lender of your mortgage is open to making changes of this kind.

Of course, as we mentioned above, a longer mortgage means more interest, so it is very important to carefully consider your options before deciding on this route.

What Is An Interest-Only Mortgage?

We mentioned above that borrowers coming to the end of an interest-only mortgage occasionally require an extension of their loan. But what is an interest-only mortgage?

This type of property finance product allows borrowers to defer repaying the full amount they have borrowed until the end of their loan’s term, which is typically between five and 25 years. Throughout that time, they are only required to pay back the interest that is accruing on the loan amount.

While this proves far more affordable in the short term, the potential disadvantage of this type of product is that the outstanding amount must be repaid in full once the loan term is over.

As they approach the end of their mortgage term, some borrowers with interest-only products may come to the realisation that they will not be able to make the repayment. Where this is the case, they may need to sell their property to cover the amount.

Alternatively, their mortgage lender may permit them to extend their term.

Can You Decrease The Mortgage Term Length?

It is absolutely possible to decrease the term of your mortgage. However, depending on your lender, you may be required to pay a penalty in order to do so – so it’s very important to check before you make your move.

What’s more, it’s important to remember that a shorter mortgage term means higher monthly repayments (although less interest overall).

One alternative to decreasing your mortgage term is to overpay. You can do this on a month-by-month basis, paying more when you have the funds to spare and less when you do not. As a result, this is the more flexible option of the two.

The majority of mortgage providers will accept overpayments of up to 10% annually before any fees apply. Above that 10%, you may be facing charges of between 1 and 5% of the sum you have overpaid.

What Happens To My Mortgage Term If I Move My Mortgage To A Different Provider?

If you choose to transfer your mortgage to a different provider, you will usually stay on the same rate deal and your interest rate and fees will not change.

You may also choose to keep the same mortgage term, but switching often provides the opportunity to increase or decrease this if preferred.

You may also change from a joint mortgage to a single-person mortgage if this suits your circumstances.

There will likely be exit fees payable when you switch to a new mortgage provider. These usually range from £150 to £300. It is also likely that you will need to pay an “arrangement fee” to your new provider – which may cost between £500 and £1,500.

It’s up to you to decide whether or not to accept these comparatively small expenses in order to achieve a better deal, a more suitable term or any other benefit in which you might be interested.

I Need Mortgage Advice – Can You Help?

While everything above may seem complex and potentially intimidating, it’s easy to expedite and simplify the process of researching your future mortgage by engaging a high-quality mortgage broker.

With in-depth knowledge of all product types available across the property finance spectrum, a good advisor will take into account your position and recommend a specific repayment setup that works in the way you need it to.

The team members at Mortgage Xperts can look back over many years within the property finance sector and can offer you expert insights and up-to-date knowledge.

Our specialists are highly experienced and extremely knowledgeable about the mortgage products, rates and terms available – along with their benefits and drawbacks.

To find out more about our services, take a look at our mortgage hub page or get in touch to discuss your requirements and learn what we can do to assist you.