A Brief Guide to Mortgage Terms

September 4, 2023

Mortgage Terms

The different terms surrounding mortgages can be difficult to understand, especially if you’re a first-
time buyer. Here, we will break down what is meant by the following:

  • Long-term vs short-term mortgages
  • Interest rates
  • Choosing your terms
  • Flexibility
  • Affordability

When it comes to buying a home, a mortgage might sound like a complex term, but in essence, it’s a loan secured against a property that helps make homeownership a reality. In this guide, we’ll explore the concept of mortgage terms, how they impact your finances, and how to choose the right term for your circumstances.

Explaining Mortgage Terms

Imagine a mortgage term as an agreement with your future self. It outlines the duration in which you commit to repaying the loan you’ve taken to buy your home. Typically ranging from 5 to 40 years, the mortgage term is a crucial factor in your home buying journey.

Long vs Short Term

Most first-time buyers opt for mortgage terms spanning around 25-30 years. This timeframe strikes a balance between comfortable monthly payments and long-term investment. However, the term’s length significantly affects the interest you’ll pay over time.

The Interest Factor

Longer mortgage terms lead to more interest paid over the loan’s duration. For instance, consider a home priced at £225,000 with a 10% deposit of £22,500 and a fixed 5% interest rate. Over a 25-year term, monthly payments could be approximately £1,087, totaling £355,138. Subtracting the initial amount borrowed, you’ll pay £152,638 in interest.

In contrast, a shorter 10-year term with the same conditions could result in higher monthly payments around £2,148, totaling £257,739. While monthly payments are higher, the interest paid over the term is lower at £55,239.

Choosing the Right Term

Selecting the right mortgage term depends on your unique circumstances. Your deposit amount, existing debts, and income all play a role. Lenders evaluate these factors to determine how much they’re willing to lend you. Align your chosen term with your budget and monthly comfort level.

Flexibility in Mortgage Terms

Your chosen mortgage term isn’t set in stone. Overpayments can shorten your repayment time. Many lenders allow up to 10% overpayments annually without fees. You can also adjust your term when your current deal ends, either with your current lender or a new one, based on your financial situation and preferences.

Maintaining Affordability

Mortgages today offer flexibility to adapt to your changing circumstances. Ensuring you can maintain repayments is crucial to prevent the risk of home repossession. By keeping up with payments, you safeguard your investment and your future.

A mortgage term is more than just a number; it’s a commitment that shapes your homeownership journey. Whether you opt for a longer term with manageable monthly payments or a shorter one with reduced interest, the choice should align with your financial goals and comfort.

By understanding and selecting the right mortgage term, you’re setting a strong foundation for a secure future in your new home.

*UK Mortgage Centre is a Trading Style of The UK Mortgage Centre Group. The UK Mortgage Centre Group is authorised and regulated by the Financial Conduct Authority – FRN 826982. Registered in England & Wales: 11614569. As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments. The Financial Conduct Authority does not regulate some forms of buy-to-let mortgages. The Financial Conduct Authority does not regulate will writing and taxation and trust advice.