In this article, we explain the process of extending your mortgage term including how lenders decide whether to allow it. We also highlight the pros and cons of making a change to your mortgage term as well as alternatives that you should explore before you decide to do it.
Reasons to extend the term of your mortgage
Increasing the term of your mortgage is usually driven by the following reasons:
- To reduce the cost of your monthly mortgage payments
- To give you more time to repay your mortgage at the end of the term (interest-only mortgage)
- To allow for a financial event such as an increase in your earnings or other financial gains to transpire
Changing the term of your mortgage
You can change the term of your mortgage as long as your lender permits this and many lenders will use discretion on a case-by-case basis. There are, however, ways to increase the likelihood that your lender will allow a change to the term of your mortgage and we explain these further in this article.
Some lenders will not allow you to change your mortgage term if you are in arrears with your monthly payments. Furthermore, your ability to change the term of your mortgage will depend on your age and how long is left before you retire when it is likely that your income and affordability will change.
If you are unsure and wish to explore all your options before you apply for a change to your mortgage term, you should speak with your mortgage broker or contact a mortgage specialist* who will provide you with unbiased, independent advice about how to achieve this.
Can you extend your mortgage term?
You can extend your mortgage term in certain circumstances if your lender accepts your request to do so. Most lenders have limits to the maximum term allowed for a mortgage to be repaid over and this will vary between 25 years and 35 years with a few lenders offering up to 40 years to repay your mortgage.
Your lender will apply its usual checks to assess whether you meet the affordability criteria for a longer mortgage term. Although, on the face of it, it may seem easier to qualify for a reduced mortgage payment, your lender will assess your age and whether a longer term may mean that you will retire before your mortgage is repaid.
Most lenders do not offer a mortgage term that will take you beyond your 75th birthday but you may find mortgage options that are designed to be repaid using pension income that passes affordability tests such as equity release mortgage options. If you are a first-time buyer and the extension to your mortgage term does not take you beyond your retirement age, chances are that your application to extend will be approved if you meet your lender's affordability criteria.
How to increase your chances of extending your mortgage term
The optimum circumstances to qualify for a mortgage term extension is if you:
- Are up to date with your monthly mortgage payments with no arrears outstanding
- Demonstrate a low loan-to-value ratio so the balance of your mortgage loan is 80% or less
- Meet the income criteria for your mortgage loan value and term
- Provide evidence of a repayment strategy for your interest-only mortgage
Can you extend your mortgage term during a fixed-rate deal period?
This would be allowed at your lender's discretion as you are tied to the terms and conditions of your fixed-rate deal. You can apply to your lender for a term extension and they will decide whether to offer one after applying their lending criteria to your current circumstances. Some lenders do not offer term extensions and this may be the case even if you are able to provide evidence to support the lending criteria outlined by your lender.
It can be slightly easier to extend your mortgage term once your fixed-rate period ends as you are not tied to your mortgage lender's terms and conditions - you could even switch lenders to achieve an extension to your mortgage term if you do this. You should speak with a mortgage specialist* in order to explore all your options so that you select the best mortgage deal for your needs overall and not only to extend the term of your mortgage.
Can you extend your interest-only mortgage term?
In some cases, your lender may allow you to extend the term of your interest-only mortgage. Interest-only mortgages are limited to a term of 25 years or less by most lenders with a few offering 30 years or 35 years to repay this type of mortgage. Interest-only mortgage loans have to be repaid at the end of the term which means that the outstanding balance of your mortgage remains the same throughout the term and your monthly payments only service the interest charged against your mortgage loan. Lenders usually require evidence to support how you will be paying off your mortgage once you reach the end of your mortgage term. If you request an extension to the term of your interest-only mortgage, your strategy for repaying your interest-only mortgage should reflect this and can include:
- Savings built up in savings accounts or ISAs during the term of the mortgage
- Proceeds from your pension
- Use of the proceeds from the sale of the property (relies on sufficient equity)
Pros and cons of extending your mortgage term
- Your monthly mortgage payment will be reduced (repayment mortgage)
- A lower mortgage payment could allow for increased living costs as well as new costs such as further education fees
- May offer extra time to accumulate the funds needed to repay an interest-only mortgage
- You will pay more for your mortgage overall as you will pay interest on your mortgage loan over a longer period
- It will take longer for you to own your house outright
Alternatives to extending the term of your mortgage
Borrowers usually wish to extend the term of their mortgage in order to reduce the monthly mortgage payments and if this is the case then you could consider the following alternatives:
- Remortgage to a different mortgage product with your existing lender that charges less interest
- Remortgage to a new mortgage lender to take advantage of a lower rate of interest
- Reduce the balance of your mortgage to improve your loan-to-value ratio to attract a lower rate of interest
- Switch to a repayment mortgage, in part or in full as you may qualify for a longer term with this type of mortgage
Which lenders allow you to change your mortgage term?
A number of mortgage lenders will consider a change in change the term of your mortgage. Below, we have provided information on how 4 of the top lenders in the UK treat changes to a mortgage term.
|Mortgage lender||Is it possible to change your mortgage term?||Comments from mortgage lenders about changes to a mortgage term|
|Halifax||Yes||"You may be able to amend your mortgage term to help manage your monthly payments. Just bear in mind that the longer you take to repay your mortgage, the more interest you'll be charged. You’ll need to speak to us to discuss your situation."|
|HSBC||Yes||"You could extend your mortgage term, which could make your monthly payments less and help you save more for the things you really love.
|Lloyds Bank||Yes||"Before you can make any changes to your mortgage term, you need to speak to us first. We'll explain the effect that any change to your mortgage term will have on your payments and the amount you owe. Extending your mortgage term will increase the amount of interest we charge because the loan will take longer to repay. This means the loan's cost will be higher."|
|Nationwide Building Society||Yes||"You can apply to reduce or extend your mortgage term at any time. Changing your mortgage term can have a big impact on your financial situation, so it's really important to understand what will happen before you apply."|
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