What does Mortgage Term mean?

The mortgage term is basically the ‘lifespan’ of your loan, the period for which you are granted the loan. The average “lifespan” of a mortgage loan is 20-25 years, but in exceptional cases it may have a double number of years as period (40-50). Certainly there are many types of mortgages, and choosing the one which best serves your needs is not always easy. Some may raise penalties if you decide to repay earlier your loan, for example you’ll have to pay 5% of the sum as a penalty if you decide to finish off your loan in the first 5 years of its term.

Practically, at a loan of £100,000 that would mean an early redemption fee of £5,000. That is why it is very important that if you consider that you will finish off earlier your mortgage, choose a lender which does not require an early redemption penalty. Just to notice the differences and how important the term of a mortgage is, let’s take a loan of £100,000 with an interest of 6%: for a term of 5 years it will cost you £1933, for a term of 10 years you’ll pay £1110, for 15 year period £844, for 20 years lifespan £716 and for 25 years £644.

As you can observe there are great differences between installments, but the truth is the shorter the term of a mortgage the quicker and more economical the repayment of the principal is.