A Complete Guide To Short-Term Mortgages

Finding and choosing a home is a lengthy process filled with research and reflection. Finding and choosing a mortgage is no different.

Prospective home buyers are the experts in their own needs and aspirations. One of the most important parts of the home buying process is balancing these factors to determine which loan terms will help you achieve your financial goals. For some homeowners, the best option is a short-term mortgage.

What Is A Short-Term Mortgage?

Any home loan that matures in less than 10 years is typically considered a short-term mortgage. This definition varies by the lender, however, with some considering any maturity of less than 20 years to be a short-term mortgage and others making the cutoff at just 2 or 5 years.

Short-term mortgages typically come with lower interest rates but require higher monthly payments, as they are spread over a shorter period of time.

As opposed to other types of mortgages, which are often spread over 15 to 30 years, short-term mortgages allow homeowners to rapidly build equity in their property. This puts them on a faster track to gain full ownership of their new home.

But keep in mind, if you're looking for a short-term loan, the Rocket Mortgage^® YOURgage^® program offers fixed-rate loans with the options to pick any term starting as short as 8 years.

How Do Short-Term Mortgage Loans Work?

With any mortgage, homeowners make monthly payments. These payments cover the principal balance and interest on the loan, as well as other items, like taxes and insurance.

Short-term mortgages function the same way, but due to the significantly shorter loan term, homeowners can expect to pay more per month on their principal balance.

Here’s a chart breaking down repayment differences:

If you can afford to make the larger monthly payments, short-term mortgages can save you money over the life of the loan because these loans typically come with lower interest rates.

When lenders determine interest rates, they’re accounting for the inflation that’ll occur over the life of the loan. Because these loans will theoretically be paid off in the not-so-distant future, the lender doesn’t need to forecast as far, and the borrower can enjoy lower interest payments.

And since there are also fewer monthly payments overall, these homeowners will pay significantly less in interest than those who move forward with long-term mortgages.

If you’re unsure if you can afford the larger payments associated with short-term mortgages, we recommend calculating your mortgage payment before applying.