When you take on a mortgage you obviously don’t expect circumstances to change for you – and neither does your mortgage lender. You should see your mortgage as a contract that both parties agree to (lender and borrower) and both parties expect those terms to be fulfilled and met. However, there is some flexibility to be found here.
Ultimately your mortgage lender wants you to pay back the full loan, so if changes need to be made to that contract to protect their money, then they’re usually accommodating. Of course, certain factors will influence the likelihood of you being accepted for a mortgage term extension, which we’ll cover below.
Today our mortgage broker expert advisers at When The Bank Says No will cover what extending your mortgage term means, why you might want to do it, how to increase the likelihood of being accepted, and what to do if you’re not.
What Does Extending Your Mortgage Term Mean?
When you opt to extend your mortgage term, you’re essentially asking to make your mortgage payments over a longer period than initially agreed. Here, your monthly repayments, which may have been worked out at first over a 20 year period, would change according to the extension, for example, over 30 years instead.
Doing so would make your monthly payments lower, but often not by as much as homeowners would assume. You should check out a mortgage online calculator to get a rough sense of the difference a mortgage term extension would make.
Remember, though, that whilst your monthly mortgage payment will be lower when you extend your mortgage loan, you will end up paying more back overall in interest rate charges, so it’s worth keeping this in mind.
Why Might People Want To Extend Their Mortgage Term?
Why a person decides to extend their mortgage term will largely be influenced by the type of mortgage they’re currently on.
If you’ve found yourself in a financial pinch then you may have been placed on interest only mortgages to help you manage your monthly payments. This will essentially extend the mortgage term automatically, but if you’re in a bad situation when the arrangement comes to an end, then a further extension may need to be applied for.
If you’re currently on a repayment mortgage as normal (paying your interest charges and the capital of the loan at the same time) but need to extend, then you’ll likely have alternative reasons for needing to do so.
Below are some of the most common reasons for extending your mortgage term:
1. Your financial situation has changed
The number one reason for wanting to extend your mortgage term is simply a change in your financial situation. This could be anything from:
- a new member of the family
- additional monthly outgoings
- wedding
- new car
- loss of job or change of income
- divorce
- death of a partner
- etc
Whatever the change, your mortgage term could be one thing you could alter in order to make the change more manageable from a financial perspective. It will help you save money each month on your payments, something which could prove invaluable at this time of change in your life.
2. Your fixed-term mortgage is ending and costs are high
At the end of each fixed term mortgage deal you’ll either revert automatically on to your lender’s standard variable rate mortgage or you’ll fix again at a different rate depending on what deals are available at the time.
However, you might find yourself in a position where rates are much higher than they were when you first fixed your mortgage deal and now what’s on offer is simply not realistic for you.
If this is the case, extending your mortgage term can be a great way to bring down the monthly cost of your mortgage payments even when interest payments remain high, helping control your mortgage repayments and manage the costs.
3. Interest only mortgage term is coming to an end
If you were switched on to an interest only mortgage due to a change in your circumstances and this change is now coming to its agreed end, then you might be forced to consider how extending your mortgage term could affect you and hopefully help you manage your monthly outgoings a little more.
Of course, if you decide to extend your mortgage term on an interest only mortgage then your outstanding balance on the loan will remain the same for the period you extend. Eventually you’ll need to switch back to a full repayment mortgage to start bringing down the total loan amount borrowed whilst paying back your interest charges too.
At some point you’ll need to work out a financial plan to return to your normal repayment mortgage, but extending your mortgage term on an interest only mortgage could be just what you need to get a little breathing space to get back on track.
4. Approaching retirement and are concerned about a lower income
As you approach retirement age you could be forgiven for taking some time to re-evaluate your finances. If you’re starting to question whether your current mortgage term is something you can meet after retirement, then you might want to consider extending the term.
Make sure you seek mortgage advice before extending your mortgage term later in life, however, as you might find that your age restricts you in terms of how long you can extend for, as there are usually upper age limits for mortgage borrowers.
If you’re taking early retirement, then you might still be able to extend your mortgage term to lower your monthly payments and ensure you can afford a comfortable retirement.
5. Need to repay other debts
At some point in your life you’re bound to find yourself needing to repay debts other than your mortgage, and it’s often a good idea to clear debts as quickly as possible. For many, this could involve extending your term on your mortgage to bring down monthly payment costs to then use the money you’ve saved to repay those smaller debts first.
In this way, you can clear your debts faster and then focus on just repaying your mortgage. Mortgages and mortgage lenders can be flexible so long as you have a good track record of paying on time and in full.
6. You plan on reverting back the term extension within 6 months
Under the mortgage charter you’re actually entitled to reverse any mortgage extension you apply for within 6 months with very little consequence, other than your final payment now being 6 months later than it would otherwise have been.
If you end up losing your job or taking a pay cut but expect to get things back to normal within 6 months and don’t want any lasting effect on your mortgage, then this could be a great way to lessen the financial load initially whilst waiting to get back on your feet, before then returning to a normal repayment plan as before.
Will I Be Allowed To Extend My Mortgage Term?
It’s possible that your current mortgage lender will simply let you extend your term. This is especially true if you’ve proven yourself to be a reliable borrower over multiple years who pays on time, in full, and without issue.
Better yet, a mortgage lender is much more likely to adjust some element of their lending criteria and mortgage deal to accommodate you if you can provide a valid reason for needing a mortgage term extension and a plan to ensure the new monthly payments are covered each time.
What To Do If Your Mortgage Lender Won’t Extend
It may be that your mortgage lender is unwilling to extend your mortgage term due to one reason or other. Your credit report, age, current interest rates and other reasons are all things that could possibly hold you back. Whatever the case, there may be no reasoning with your lender once their mind is made up.
But don’t worry, hope isn’t lost. You can work with a mortgage broker, like our team at When The Bank Says No, who will find you the best deal with a specialist mortgage lender who is willing to listen to your circumstances before lending.
Why Choose When The Bank Says No?
We can help turn your no into a yes, so if you’re struggling to extend your term to make your mortgage repayment work for you, talk to our expert team today.
Should I Extend My Mortgage Term?
Choosing whether or not to extend your mortgage term is a personal decision but there are some things you should consider.
The first is how important the date of your final payment is to you. If you want to stick to your original final date, then there may be alternatives to mortgage extension that you can find that better suits you. Remember too, that whilst the monthly payments you make might well be lower, you’ll pay more overall on the loan in interest rates if you do extend, so this is worth weighing up to see what works for you.
Ultimately finding the right mortgage balance for you is a personal journey, but one that can be helped with the right support from the right experts.
If you find a mortgage extension with your current lender isn’t going to work, then work with our team. We may be able to find a specialist mortgage lender willing to offer you a new deal that suits you better when you remortgage with them. Contact us today and we’ll see how we can help, no matter your circumstances.