What is a mortgage term and which one is right for you?

IF you’re lucky enough to be in a position to buy your first new home, signing yourself up for a mortgage might seem a little daunting.

With plenty of options to choose from - including what your mortgage term will be - it can get confusing.

To help you break down the jargon, we explain what a mortgage term is and how to find the right one for you.

What is a mortgage term?

A mortgage term is the amount of time it takes to pay off your loan.

You can choose to take out a shorter mortgage term or a longer term mortgage term.

A short-term mortgage is usually considered to be 20 years or less, while a term of 30-years is classed as a longer term.

One of the most common mortgage terms is a 25-year mortgage, but you could pick one for as much as 40 years.

If you pick a shorter mortgate term, your monthly repayments will be more - but, you'll ultimately pay less in the long-run as your interest will be less.

Go for a longer-term mortgage, and your monthly repayments won't be as much - but ultimately, you'll pay back more in interest.

If you took out a mortgage term of 35 years, that would mean you have until 2056 to pay it all off.

How do I pick the best term for me?

Picking the best mortgage term for you requires research.

Typically, your mortgage term should be as short as possible so you can save money on interest repayments.

But it shouldn't be too short where you're struggling to meet the repayments.

That means that you need to take into account what your personal circumstances and finances are before you commit to a term.

However, here are some tips from experts that different types of buyers might want to follow below:

First-time buyers

Soaring house prices over the course of this year has meant more first time buyers have opted for longer mortgage lengths, Habito mortgage expert Alex Winn said.

It's meant that more expensive homes has pushed up the amount buyers need to pay back per month - and has made repayments more unaffordable.

"This is particularly true for first time buyers who typically have smaller deposits - 5% to 20% of of the value of the home," she said. 

Picking a longer-term mortgage will therefore most likely be the only way many first time buyers - or those with small deposits - can get a mortgage, Quilter mortgage expert Charlotte Nixon said.

But she adds you can still overpay your mortgage to drive down interest.

"Some mortgages offer flexibility and allow you to make over-payments, which will have the effect of reducing your term and the amount of interest you pay overall,"; she said.

However, be aware that you might be charged a fee for paying your mortgage off early.