What is a mortgage term? Mortgage terms are how long you pay your mortgage back over the years. Mortgage terms can either be fixed or adjustable, depending on your mortgage provider. An adjustable mortgage term lasts a longer duration than a fixed mortgage term.
Usually, standard mortgage terms are 30 years, however, you could get one which lasts between five and forty years in the UK. For instance, if you were to take out a thirty year fixed mortgage at the start of 2021, and made all the repayments on time, it would finish at the end of 2035. However, if your mortgage term is the shortest term, your mortgage interest will normally be lower as your mortgage term is the longest. The mortgage lender will ask to see an accurate date so they can calculate the interest rate for you and give you a quote.
With some mortgages, the term can start on the first day of borrowing and finish on the last day of the same year. Others will allow the term to start on the first day of borrowing and finish on the last day of the following year. There are two exceptions to this rule – First home buyers will usually have a fixed mortgage term of five years from the purchase date, and then the option mortgages may start on the first day of borrowing and finish on the last day of the following year. One thing to remember about this is that the mortgage provider will usually want you to borrow more than the amount of your initial interest rate. This will mean that over the term of your mortgage, the amount you borrow will increase each year. So, it is important to budget for this possibility.
To find the best mortgage term for your circumstances you need to work out what your initial interest rate will be when you start your mortgage term. This will depend on how much you borrow and how long the mortgage term is. For instance, if your initial rate is 3%, you could choose to take a thirty year mortgage term, but if you borrow only two thousand dollars per month and your monthly repayments are around three thousand dollars then you should opt for a thirty year mortgage term with a low rate of interest. Your calculations need to include your annual taxes and your monthly repayments at this point. You also need to consider your budget for the next five years so that you know how much your total repayments will be.
When you look at the choice between a longer or shorter mortgage term you have to also consider what kind of home you have. As most houses today are built with a higher density, with many rooms to rent out, the larger the number of rooms the higher the amount you will pay in rent. However, when you opt for a shorter mortgage term, you will pay less interest. Mortgages for bigger homes generally have a lower interest rate, but this depends on the lender. Therefore, you have to calculate the amount of rent you will be paying over the next five years and this will help you decide whether it is better to opt for a bigger home or a smaller home with a lower rent payment.
It is important to go over the mortgage term length with your lender before you sign up for anything. Check whether your lender offers any flexibility with this before you commit. If they do not offer any flexibility then you will have to decide on a long term that suits you best and that you can afford. You will have to think about how much you can afford to pay back every month after the introductory period, and think about what kind of monthly payments you can afford. It is advisable to get an online mortgage calculator to help you work out these figures.