Pros and cons of extending your mortgage – could it help with rising costs?
Extending your mortgage term means adding to the number of years that you were originally intending to pay back your loan which can make your monthly payments go down – however the decision shouldn’t be taken lightly
Extending your mortgage is just one way of potentially lowering your monthly repayments – but is it the right thing for you to do?
Mortgage costs have skyrocketed over the last two years due to rising interest rates. Millions of mortgage borrowers will continue to face a financial shock over the coming years as they continue to drop off cheap fixed-rate deals. It is estimated that 1.6 million households will be remortgaging this year from deals which were lower than 2%.
With mortgage rates at an all-time high, it comes as no surprise that people are looking for ways to manage costs better and one option people have is to extend their mortgage terms. Traditionally, mortgages in the UK have a term of 25 years, however over the last five years there was a rise of 117% opting for longer terms such as 35 years according to research from Money Super Market.
Extending your mortgage term means adding to the number of years that you were originally intending to pay back your loan which can make your monthly payments go down. However, Pete Mugleston, MD and mortgage expert at Online Mortgage Advisor says this decision should not be taken lightly. Here Pete highlights both the pros and the cons of extending your mortgage.
Pros of extending your mortgage
Pete says one of the “primary advantages” of extending your mortgage term is to reduce monthly repayments. He added: “This can provide significant breathing room, particularly when the cost of living is at an all-time high. Lower monthly payments can also improve cash flow, allowing homeowners to allocate funds to other essential expenses or savings.”
He highlighted that extending your mortgage term could also make homeownership “more accessible” for some individuals especially first-time buyers who might find standard mortgage payments unaffordable. He added: “This flexibility can be a lifeline for those struggling to get on the property ladder.”
Cons of extending your mortgage
Pete noted that extending your mortgage term is not without its disadvantages and the “most significant downside” is the increase in the total interest paid over the lifetime of the loan. He explained: “By spreading payments over a longer period, you end up paying more interest, which can significantly increase the overall cost of your home.”
Prolonging your mortgage term also means you’ll be in debt for longer, Pete warned, adding: “This extended financial commitment can impact long-term financial planning and delay milestones such as retirement or significant investments. A significant number of under 30s are opting for ultra-long mortgages that they will still be paying off during their retirement. This raises the question: will they have the means to afford the remaining mortgage payments in retirement?”
Should you extend your loan or switch to interest-only?
Pete says choosing to extend your mortgage or switch to an interest-only mortgage comes down to your financial situation and long-term goals. An interest-only mortgage, just means you’ll be repaying the “interest” element of your mortgage. So you pause repaying the money you have borrowed to buy your home. YOu can have this for a
He explained: “Interest-only mortgages can provide temporary financial relief with lower monthly payments. However, they also come with risks. At the end of the interest-only period, you might face significantly higher payments or the challenge of securing a new loan potentially under less favourable terms. Additionally, since you’re not paying down the principal, you’re not building equity in your home during the interest-only period.”
Pete says choosing between extending your mortgage term or switching to an interest-only mortgage should be based on “careful consideration” of your long-term objectives and financial position. He added: “Extending the mortgage term can offer immediate relief but at a higher overall cost, while an interest-only mortgage can provide short-term benefits with future risks. Consulting with a mortgage advisor can help tailor the best strategy for your unique financial situation, ensuring that your mortgage plan aligns with your broader financial goals.”
Both options are available under the Government’s “Mortgage Charter” which was introduced in 2023. If you choose to extend your mortgage you can extend it for as long as you would like. If you choose to swap to an interest-only mortgage, you will only be able to swap for six months.
Introduced alongside the Financial Conduct Authority (FCA) the charter sets out standards which lenders have to follow to support people struggling with their mortgage payments. Most UK lenders – including all the major ones – have signed up to the charter. If you switch to a different deal through the mortgage charter it will also not impact your credit score.
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