Your Mortgage Term - What you need to know

When it comes to your mortgage, one of the most important factors to consider is the term of the loan.

I spoke last week about it being one of the three key drivers of your monthly payment and can be as short as 5 years, or as long as 40 years! ?

Our situations and needs naturally evolve as we go through life, be it; career progression, marriage, having a family, separation, retirement etc and it’s so important for your mortgage to flex around you and your lifestyle.

Understanding Mortgage Terms

A mortgage term is the length of time you have to repay your loan and affects your monthly payments and the total amount of interest you’ll pay over the course of the loan.

Shorter Terms: Opting for a shorter term, such as 5 to 15 years, means you’ll pay off your mortgage faster. While this results in higher monthly payments, you’ll pay less interest overall.

Longer Terms: Conversely, a longer term spreads your repayments over a more extended period such as 35 or 40 years, meaning lower monthly payments. However, this means you’ll end up paying more interest over the life of the mortgage.

The Flexibility of Mortgage Terms

The flexibility in mortgage terms allows you to tailor your mortgage to your current financial situation and long-term goals. It’s crucial to review your mortgage term regularly, especially if your circumstances change—such as a shift in income or lifestyle.

Using me as an example, with a young family of 5:

·???????? My immediate priority has been to keep monthly mortgage payments as low as possible, to ensure we have the money to see them through nursery and school, feed them, cloth them and live a reasonable lifestyle. A longer term has helped us do this.

·???????? ?With them now in their teenage years and the prospect of them leaving home in the future, my focus and surplus income will switch to reducing the mortgage term and paying it off more quickly! That's assuming I don't have a mid-life crisis and spent this surplus elsewhere!

Mortgages for Over 40s

Once we reach 40, we’re likely to be within 30 years of our intended retirement age, so we need to be mindful of this and choose a mortgage term that aligns with our retirement plans.

The majority of lenders offer a mortgage term up to the age of 70 with very few questions asked if your intention is to work until then. Let’s face it - for most of us, it could actually be the state retirement age by the time we get there!

Many lenders will also consider a term up to age 75, albeit with a few more questions to establish reasonability:

·???????? Is it feasible you could continue with your occupation until 75 i.e. is it non-physically demanding? Office worker = yes, construction worker = probably not

·???????? Are you contributing to a pension that could be used to fund monthly payments in retirement if you were to retire before the end of the term?

If you’re within 10 years of state retirement you’ll probably need to provide pension projections, whereas more than 10 years away, a payslip to show a monthly pension contribution usually suffices. ?

?A few lenders may even lend up to 80 or 85 using employed income, albeit their checks may be more stringent.

Every lender has a slightly different approach (to most things), so using a mortgage broker will help advise you and navigate your options.

Regular Reviews

As above, whilst a longer mortgage term may suit your needs now, none of us would choose to have a mortgage in our 70s, so reviewing at regular intervals can help ensure it meets our needs as our situation evolves.

You may actually have a more short-term need for a change in the term. So many of us have faced a jump in monthly payments as we go from low fixed rates in the 1%s and 2%s, to 4%s, 5%s or even 6%s and extending the term has been an option for many to minimise this increase to keep payments at an affordable level.

It's actually more simple than you might think to change the term and reviewing this every time your rate comes to an end can be a useful prompt.

Final Thoughts

It's clear that selecting the right mortgage term involves balancing your current financial situation with your long-term goals and your Mortgage Broker can help to guide you.

The flexibility with mortgage terms really does give you options to suit the different stages of life you go through and your financial plans.

Regularly reviewing your mortgage term is so important to ensure it remains aligned with you and your family's changing needs, helping you manage your finances effectively throughout your life and get you to being mortgage free!

About Me

I'm Mark Humphrey, founder and Advisor at MHC Mortgage & Protection Ltd, a mortgage broker firm based in Whitstable and helping people buy their homes across the UK.

I've worked in Mortgages for over 20 years and am passionate about making the mortgage and moving process as simple and stress-free as possible.

Buying your home is a BIG DEAL and with a bit more understanding and help along the way - it really can be such a position experience and not the stressful and anxious time that so many people dread!

Your Home may be repossessed if you don't keep up with your mortgage payments.