Short term mortgages: Discover if they are the right option

A short term mortgage will cost you less in the long run, but the monthly repayments are higher.

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A short term mortgage is a great idea – if you can afford it.

You’ll pay a lot less interest and will be able to become mortgage-free quicker. The main disadvantage is that the monthly repayments will be a lot higher.

Realistically, you’ll only be able to afford the repayments on a short term mortgage with a small loan-to-value ratio. Many of those opting for short term deals will have either saved a huge deposit or are selling a home they’ve built a lot of equity in.

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How to find the best short term mortgage deal

Most mortgage lenders have a minimum term (usually between three and five years) and a minimum borrowing amount on their traditional mortgage products. If these terms aren’t suitable, explore lenders that specialise in short term deals.

As with any mortgage product, the lender’s biggest priority is that you can comfortably afford the monthly repayments. You may want to use a professional mortgage advisor to find the most suitable deal for your needs. These individuals have specialist knowledge of the mortgage market and will be able to point you towards the most affordable deals that suit your circumstances.

Alternatives to short term mortgages

If you can’t find a suitable short term mortgage, consider these alternatives:

  • Personal loans. It’s possible to secure a personal loan against a property. However, the maximum amount on these products tends to be too small to finance most property purchases.
  • Bridging loans. Bridging loans are quicker to organise than mortgages and can be secured against uninhabitable properties, but they have huge interest rates. They are typically used to finance purchases that buyers are looking to sell quickly at a profit. This process is called “flipping”.
  • Buy-to-sell mortgages. This is another product for those looking to “flip” properties. The interest rates are lower than for bridging loans, but these products are only available on inhabitable properties and take longer to get approval.

Summary: What are the pros and cons of short term mortgages?

Pros

  • Cheaper than a long term mortgage.
  • Lower interest rates than a bridging loan.

Cons

  • Bigger monthly repayments than a long term mortgage.
  • There are more terms to meet than for a bridging loan.

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