"One of the primary advantages of extending your mortgage term is to reduce monthly repayments. This can provide significant breathing room, particularly when the cost of living is at an all-time high."
- Pete Mugleston - Online Mortgage Advisor
With mortgage rates at an all-time high, it comes as no surprise that people are looking to extend their mortgage terms so their monthly premiums go down - a decision not to be taken lightly.
The advantages of extending your mortgage term
One of the primary advantages of extending your mortgage term is to reduce monthly repayments. 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.
Extending your mortgage term can also make homeownership more accessible for some individuals, especially first-time buyers who might find standard mortgage payments unaffordable. This flexibility can be a lifeline for those struggling to get on the property ladder.
The drawbacks of extending your mortgage term
Extending your mortgage term is not without its disadvantages, however. The most significant downside is the increase in the total interest paid over the lifetime of the loan. 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. 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?
'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 enables you to make payments solely towards the interest on the loan for a specified period, typically five to 10 years. After this period, you start to repay the principal or the loan will need to be refinanced
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.
Ultimately, 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. 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.
