A mortgage term is simply the length of time you have to repay your home loan.
In the UK, this typically ranges from 25 to 35 years. While this might seem set in stone, it is possible to extend your mortgage term under certain circumstances.
Why would you want to do this? The most common reason is to lower your monthly payments.
This can be a lifeline if you’re facing financial pressures, such as a change in income or unexpected expenses. By spreading the loan over extra years, you can free up cash flow and make your mortgage more manageable.
However, extending your mortgage term isn’t a magic solution. While it offers immediate relief, it comes with a trade-off: you’ll end up paying more interest over the life of the loan.
Understanding Mortgage Terms
Mortgage terms are usually 25 to 35 years, although shorter or longer terms are possible.
The length of your term directly impacts your monthly payments and the total interest you’ll pay.
When you apply for a mortgage there are two main types of repayment method: Repayment and interest-only.
Interest only
Interest-only mortgages, on the other hand, require you to pay only the interest each month.
This results in lower monthly payments, but the entire loan amount remains outstanding at the end of the term. This means you’ll need a separate strategy to repay the capital, such as property, investments or savings.
The length of your mortgage term will affect the monthly payments for a repayment mortgage.
It makes no difference whatsoever to an interest only mortgage!
A shorter term means higher monthly payments but less interest paid overall, while a longer term results in lower monthly payments but a greater total interest cost over time.
Choosing the right term depends on your financial circumstances, affordability and long-term goals.
Reasons to extend
Extending your mortgage term can be helpful in many different financial situations, particularly those that are temporary:
Financial Difficulty
Unexpected financial hardships, such as a reduction in income or unforeseen expenses, can make it difficult to manage mortgage payments.
By extending the term, you can significantly reduce your monthly outgoings, providing much-needed breathing room in your budget while you get back on your feet.
Life Events
Major life changes like the arrival of a new baby, a career break, or a period of unemployment can temporarily impact your income and financial stability.
Extending your mortgage term can offer a short-term solution to adjust to these changes and ensure your home remains affordable during this transitional period.
Interest Rate Changes
If interest rates increase, your mortgage payments could rise substantially, especially if you’re on a variable rate deal.
Extending the term can help mitigate the impact of these higher rates by spreading the cost over a longer period, offering a temporary buffer while you explore other options like remortgaging to a fixed-rate deal.
Interest-Only Mortgages
If you have an interest-only mortgage, extending the term can give you more time to build up the funds needed to repay the lump sum at the end of the original term.
It won’t, however, make any difference to the monthly payments.
What Difference Will It Make to My Payments?
Extending the term will undoubtedly reduce your monthly payments.
This is because you’re spreading repayment of the debt over a longer period, resulting in smaller individual payments.
However, you need to understand the trade-offs involved.
Let’s say you have a £250,000 mortgage at a 5% interest rate. Here’s how extending the term could impact your payments:
| Term | Payment pm | Interest paid |
|---|---|---|
| 25 years | £1,461 | £188,444 |
| 30 years | £1,342 | £233,138 |
| 35 years | £1,261 | £279,922 |
So the 35 year term saves you £200pm each month. But by the end of the term you have paid £279,922 in interest, that’s an extra £91,478!
Use our FREE Mortgage Repayment Calculator to work out your repayments
Drawbacks
Extending your mortgage term isn’t a decision to be taken lightly, as it comes with several risks and drawbacks:
Increased Overall Cost
While extending your mortgage term lowers your monthly payments, it significantly increases the total interest you pay over the life of the loan.
You owe the money for longer and your home will ultimately cost you more.
Slower Equity Growth
With a longer mortgage term, a smaller portion of your monthly payments goes towards paying off the loan.
So it takes longer to build equity in your home, which could affect your options for remortgaging or selling in the future.
Age Restrictions
Most lenders have age limits for mortgage term extensions, often capping the term at the age of 75-80 or your planned retirement age.
This could limit your ability to extend if you’re nearing retirement.
Impact on Retirement
Extending could mean you’re still making payments into your retirement years.
This can significantly impact your retirement income and financial security. Consider whether you’ll be able to comfortably afford the payments on a reduced income.
Should you get a 30 year mortgage term?
Recent research has discovered that half of all first time buyers are now choosing a mortgage term of 30 years, or more.
What are the alternatives?
Before extending your mortgage term, it’s wise to explore any alternative options:
Remortgaging to a lower interest rate could be a viable solution. By switching to a more competitive deal, you could potentially reduce your monthly payments without extending the term and incurring extra interest charges.
If you’re facing a temporary financial squeeze, switching to an interest-only mortgage for a short period could offer some relief. Remember that you’ll need to revert to a repayment mortgage or have a plan to pay off the capital at the end of the interest-only period.
Downsizing to a smaller property with a lower mortgage balance can be a drastic but effective way to reduce your monthly outgoings.
Tip!
If you do end up extending the mortgage term then consider the possibility of making small overpayments to reduce the debt.
This may not be possible straightaway but even small additional payments can make a big difference over time.
Most deals allow you to pay off an extra 10% each year without penalties.
And if it’s affordable, you could always look to shorten the term at a later date.
How to Extend Your Mortgage Term
While extending your mortgage term is generally possible, it’s important to remember that lenders have different criteria for approval. A clean payment history is essential – falling behind on your mortgage could make extending your term a non-starter.
Even if you’re up-to-date with payments, lenders will want to assess your ability to afford the new, lower monthly payments over the extended period. While the reduced payments might seem easily manageable, your age and proximity to retirement will be taken into account. Lenders tend to be more cautious if the extended term pushes your mortgage repayment timeline significantly closer to retirement age.
It’s also worth noting that many lenders have an age cap, often around 75, for when your mortgage must be fully repaid. This means if extending your term would push your final payment beyond this age limit, your request might be denied.
Contact Your Lender
The first step is reaching out to your current mortgage lender. They’ll outline the available options, specific requirements, and any associated fees. Each lender has its own process, so it’s important to get information directly from them.
Discuss Your Options
Have a conversation with your lender to explore the potential term extensions they offer. They can provide a clear picture of how different term lengths will affect your monthly payments and overall interest costs. Be prepared to explain your reasons for wanting to extend your term.
Affordability Assessment
Depending on your lender and individual circumstances, you’ll probably need to undergo an affordability assessment. This involves reviewing your income, expenses, and overall financial situation to ensure you can comfortably manage the new, lower monthly payments.
Review and Confirm
Once you’ve chosen a new term length and completed any necessary assessments, your lender will send you an agreement. Once you’re satisfied, you can sign the agreement to officially extend your mortgage term.
Remortgage to a new lender (and extend the term)
Whether this is feasible or not will depend on:
Early repayment charges
By moving your mortgage elsewhere you may have to pay early repayment charges (ERC). These can run to many thousands of pounds which could mean it’s not economical to proceed.
Eligibility criteria
You also need to be a suitable borrower for the new lender. As you are applying for a new mortgage it will involve; proof of income, credit search, affordability, etc.
If your current lender can’t offer you a good solution then remortgaging to a new lender could open up some more options for you.
It’s a bit more involved but could mean that you get the extended mortgage term you need along with a new interest rate deal.
You will find more useful information in our Remortgage Guide
Mortgage advice
A mortgage adviser will be able to help you choose between extending the term with your current lender, or switching to a new lender.
An independent mortgage adviser will have access to over 100 lenders and thousands of deals.
Their help becomes increasingly important where your situation is complicated or your new term means you’re going to borrow into retirement.
Let Respect Mortgages introduce you to a remortgage expert, who can give you the right advice.
Or call us on 0330 030 5050.
