How Do I Extend My Mortgage Term?

The economy seems to be showing signs of recovery, but the cost-of-living crisis is still impacting households up and down the country. One area that the crisis has had a tremendous impact on is mortgages and some people are struggling to make ends meet.

Balancing mortgage payments alongside increasing energy costs and council tax hikes can be daunting, leading people to ask whether they can extend their mortgage term and reduce their monthly mortgage payment. The good news is extending your mortgage term is usually possible, however there are pitfalls you will want to avoid.

Let’s discover how to extend your mortgage term and address some of the issues you may encounter while trying.

What is a Mortgage Term?

Your mortgage term is the overall length of time you will have your mortgage debt. Historically, people tended to favour 25-year mortgage terms, especially where affordability requirements were more relaxed and the cost of buying a home was cheaper.

Now, many borrowers are finding they need to extend mortgage terms at the outset to pass affordability checks and still afford the price of a property.

It is not uncommon to find mortgage terms up to 35-years in the current mortgage market.

What is a Mortgage Product Term?

A mortgage term should not be confused with your mortgage product term, also known as a mortgage deal. A product term forms a much smaller block of your overall mortgage length.

Product terms are typically between 2 and 5 years and are offered to borrowers as an enticement to take a loan with a lender. Product terms have favourable interest rates compared to standard mortgages which have uncompetitive Standard Variable Rates.

A Standard Variable Rate is a rate that can change and is decided by the lender without consideration of other mortgage products on the market. They are designed to generate the lender profit from people who fail to remortgage or are unable to remortgage for any reason.

Mortgage borrowers who are stuck on Standard Variable Rates, and unable to remortgage, are called ‘Mortgage Prisoners’ as they are effectively trapped with whatever punitive interest rate a lender decides to charge. There are many mortgage prisoners as a result of the Financial Crisis (of 2007/2008) regulation changes. Prior to the crisis, many mortgage borrowers took Self-Certification mortgages, where income proof was self-certified. There were no vigorous underwriting checks like there are today. This means that anyone who borrowed a Self-Cert mortgage is now at risk of being unable to refinance as underwriting criteria is now far more strict.

Can I Extend My Mortgage Term?

If you are coming up to the end of your product term you can normally remortgage and extend your mortgage term. Reputable brokers like Boon Brokers have systems in place that will notify you 6 months before your existing product expiry date via text, e-mail and automated postal letter to ensure that you are well equipped to refinance with plenty of time to spare. This will give you time to consider whether you wish to extend your term or not.

There are limitations though and you may find that you are unable to extend your mortgage term. The most common issues people encounter when trying to extend a mortgage term are:

• Already at the maximum mortgage term available (most lenders allow a mortgage term up to age 70 or 75)
• The extended mortgage term takes you past the age of retirement and you do not have pension income to show you can afford the product
• You are in a product term and have an Early Repayment Charge if you decide to remortgage early to extend your mortgage term

Extending your mortgage term should realistically be done when you have the ability to show income beyond retirement age, are at the end of your current product term and have a margin to extend the term. However, be aware that extending your mortgage term will increase the overall cost of the interest on the debt.

Benefits of Extending a Mortgage Term

The biggest benefit of extending a mortgage term is the potential to reduce your monthly mortgage payment. This is a short-term solution to a borrower’s cashflow issues.

This only works if you are able to source a mortgage at the same or a lower interest rate than you currently have.

An issue that some have encountered when extending a mortgage term with mortgage interest rates being higher on average is the monthly payment is not reduced. However, you will find comparatively, the mortgage payment is typically less on a higher interest rate by extending the term.

Ultimately, you will need to remortgage anyway to achieve the best possible interest rate. A shorter term on a higher interest rate will be more expensive than the same rate over a longer term.

Downsides of Extending Your Mortgage Term

When you extend your mortgage term, you are increasing the total cost of your debt. This is because you are extending the amount of time interest is charged on the loan.

Your capital repayments will also be diminished over a longer term compared to a shorter term, meaning you will be charged interest on the capital for longer.

If you are not close to the end of your product term, you may that find your lender imposes an Early Repayment Charge if you remortgage early to extend your mortgage term.

Early Repayment Charges can be expensive, and it is important to consider whether you are saving money by remortgaging early and paying a charge. You can do this by comparing the charge to the total amount of monthly savings over your new product term.

If your Early Repayment Charge is higher than the saving you make over your product term it is normally best to wait until your current product term ends, although in exigent circumstances this may not be possible.

Alternatives to Extending Your Mortgage Term

If you are opting to extend your mortgage term to save money and help your current finances, you should look at alternatives first.

For example, many lenders offer payment holidays to those experiencing financial hardship which will allow you to defer mortgage payments for a period of time until you get your finances back in order.

You may also want to change your mortgage, either by looking at interest only mortgages or remortgaging onto a better interest rate, both of which can reduce your monthly payments.

Extending your mortgage term should be viewed as a last resort due to the additional cost implications.

How to Extend a Mortgage Term (Speak to a Qualified Broker)

As you might expect, extending your mortgage term is a nuanced area of your personal finances. If you make a mistake with the decision, it can have longstanding financial implications.

When considering a mortgage term extension, you should seek advice from a qualified mortgage broker.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Broker. Boon Brokers offers fee free impartial mortgage advice.

Contact Boon Brokers to book your initial consultation with a dedicated mortgage broker today.