CR5 Issue 169 June 2019

Mortgages: Short-term or long-term
It’s easy to be overwhelmed by
the sheer number of mortgage
products available, and the
trend towards offering nontraditional
mortgage terms
doesn’t help when you’re
trying to decide which loan is
best.
Banks and building societies
are increasingly offering
longer-term mortgages lasting
30 or 40 years alongside the
‘standard’ 25-year term with
which many of us are familiar.
Shorter-term mortgages of 15
years or so are also available,
so what are the pros and cons
of short-term and long-term
mortgages, and which might
be better for you?
SHORT-TERM MORTGAGES
A mortgage is likely to be the
biggest financial commitment
of your life, so you need to
make sure you’ve considered
all the potential problems and
issues that might arise. The
higher monthly repayments
on a shorter-term mortgage
do expose you to a greater
risk of default, but there are
also many advantages to be
enjoyed.
Choosing a shorter-term
mortgage of 15 years or less
means you pay off the loan
much quicker than many
people do, but you also have
to consider the cost to you, not
only in direct financial terms
but also in the quality of your
life and the potential stresses
of repaying higher amounts.
Younger applicants
might be able to
obtain a 35-year
plus mortgage
Why choose a short-term
mortgage?
Short-term mortgages have
higher monthly repayments,
but you’ll pay considerably less
interest overall. If you’re able
to put down a large deposit,
you don’t need to borrow as
much money, which is just one
instance where short-term
mortgages might be a good
idea.
An additional advantage is
that, if you’ve been able to
repay your mortgage sooner
than later, the equity in your
property will also grow faster.
The initial consideration if
you’re thinking about a shortterm
mortgage, however,
is whether you can keep up
repayments over this period.
Can you afford a short-term
mortgage?
Your monthly budget will
dictate whether it’s possible
to repay your mortgage
over a shorter period of time
than the standard term, but
you need to be very careful
not to overstretch yourself
financially.
Also bear in mind the
potential interest rate rises
in the future, particularly
considering the low rates
we’ve enjoyed for more than
a decade. In other words, the
only direction interest rates
are likely to go is up.
Responsible lending practices
for mortgages
Mortgage lending practices
have been strictly controlled
since the global financial
crisis of 2007, and your ability
to repay should be carefully
scrutinised by each lender.
They’ll look at your regular
outgoings and are unlikely to
grant your application if they
feel you’re a risk of default.
If you’re tempted by a
shorter-term mortgage and
earn the income to afford
the repayments, it might also
be worthwhile considering
mortgage payment
protection insurance (MPPI)
to cover your repayments for
a fixed time if you fall ill or
lose your job.
Are there any alternatives to
a short-term mortgage?
Instead of making high
payments to your mortgage
every month, it may be
worthwhile looking into
mortgage products that allow
you to make overpayments
as and when you can afford
it. It takes off the pressure of
having to consistently meet
high repayments, and allows
a little flexibility that can
take years off your overall
mortgage term.
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