Extending Mortgage Term: How to Choose the Right Mortgage Term for Your Financial Situation
Whether you’re a first-time buyer stepping onto the property ladder or a seasoned homeowner, choosing a mortgage term that aligns with your long-term financial goals is important. In this article, we will explain what it means to extend your mortgage term, the pros and cons, and give you some practical steps to make informed decisions.
Mortgage Terms
A mortgage term is the time you agree to repay the loan. Traditionally, terms have been 25 years but now mortgage terms of up to 40 years to repay your mortgage balance is becoming more common.
Many homeowners may wonder, “What happens if I extend my mortgage term?” Extending your current mortgage term will lower your monthly payments but may mean paying more interest overall.
What does it mean to extend my mortgage term?
Extending your term means lengthening the period you repay your mortgage loan. For example, if you originally had a 25-year mortgage and extend it to 35 years, your monthly repayments will be lower as you are spreading the loan amount over a longer period.
Pros of extending your mortgage term
- Lower monthly payments: A mortgage term extension will lower your monthly mortgage payments so you can save money in the short term and manage your finances better.
- More time for interest-only mortgages: With interest-only mortgages, where the outstanding balance is paid at the end of the term, an extension will give you more time to pay off the loan amount.
- Room for major expenses: If you have new major monthly expenses such as childcare or education expenses, a repayment plan with lower mortgage payments will help.
- Avoid rising interest rates: If interest rates are set to rise at the end of a fixed-term mortgage, extending the term could keep your repayments affordable.
Cons of extending your term
- More total interest paid: While monthly payments will be lower, you will pay more interest throughout the life of the loan. A shorter term of your mortgage means you’ll pay less interest over time, while a longer mortgage term will cost more money in the longer term.
- Longer repayment period: Mortgage extensions mean you will be paying off your mortgage for a longer period which may not be suitable for everyone, particularly buyers nearing their planned retirement age.
- Your mortgage balance will be reducing at a slower rate resulting in a lower build up of equity
Can you extend without remortgaging?
Yes, depending on your lender’s policies, you can extend your mortgage term without remortgaging. Under the mortgage charter, some mortgage lenders will allow you to change your mortgage term while others will require you to take out a new mortgage. You need to check with your mortgage broker or existing lender to learn what your options are.
How to extend your mortgage term
- Contact your mortgage broker or existing lender
First, talk to your broker or current mortgage lender to let them know you want to extend the mortgage term. They will tell you what mortgage options are available and any associated costs, including changes to your monthly mortgage payment. - Affordability checks
Most lenders will use an affordability check to determine your financial situation and ensure you can manage the extended term. This involves looking at your income, other debts, expenses and credit history. - Remortgage
If your current lender can’t offer good terms consider remortgaging with a different lender. Compare offers to find the most suitable one for you with a monthly payment and interest rate suitable for your income. Keep in mind that you may need to pay an early repayment charge if you remortgage to a new lender. - Get professional help
Talk to a mortgage advisor or financial expert to get help extending the term of your mortgage. Expert advisers will provide you with personal advice and help you make a decision. - Read the fine print
Read the terms and conditions of the extension including interest rate changes, monthly payments and any fees that may differ from your original term and current interest rate. - Complete the application
Provide all the documentation your lender requires, such as income proof, identification and property details. - Monitor your finances
Regularly check your finances after extending the term. Consider making extra repayments when you can to mitigate the impact of higher interest accrual
How a Mortgage Broker Can Help
A mortgage broker like Eden Hawk Financial Solutions can be a big help when considering extending the term of your mortgage. They have access to many lenders and can compare different mortgage products to find the most suitable one for you. They can also provide expert advice on what extending your mortgage term means, the maximum term you can choose, and the monthly payment, other costs and benefits involved.
Final Thoughts
Extending your mortgage term can be a clever way to get more financial flexibility and manage your expenses better, but you need to weigh the pros and cons and get professional advice to ensure it fits your long-term goals. By understanding the process and exploring your options you can make an informed decision and have financial security and peace of mind.
Get in touch today and talk to one of our mortgage advisors to learn more about extending your mortgage term. At Eden Hawk, we offer professional advice to help you make decisions that fit your goals.