In this article, we explain how a mortgage term works and whether you can reduce it. We also reveal the advantages and disadvantages of modifying your mortgage term*, along with alternative options that should be considered before making a decision. Additionally, we examine the criteria that lenders use to determine whether to approve a change in the mortgage term and explain the circumstances in which such changes are more likely.
Reasons to reduce the term of your mortgage
Reducing the term of your mortgage is usually driven by the following reasons:
- To reduce the overall cost of your mortgage as you will pay less interest over a shorter term
- You can afford to pay more towards your mortgage each month
- You plan to sell the property to repay your mortgage sooner
- You are retiring earlier than planned and wish to repay your mortgage in line with this
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What is a mortgage term?
A mortgage term is the number of years over which your mortgage loan is repaid - the most common mortgage term is 25 years but you can choose a mortgage term that ranges from 5 years up to 45 years.
During the term of a repayment mortgage, you will make monthly repayments that include the interest payable on your mortgage loan as well as some of the capital that you borrowed, so that by the end of the term of your mortgage the balance is zero. In contrast, on an interest-only mortgage, you only pay the interest that accrues and the balance remains the same throughout. You would then be expected to repay the balance in full using a lump sum at the end of your mortgage term. Regardless, of which type of mortgage you choose, the term of the mortgage denotes the number of years that will pass before your mortgage is fully repaid.
Changing the term of your mortgage
You can change the term of your mortgage as long as your lender permits it 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 later 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 as your income and affordability is likely to change.
If you are unsure and wish to explore all your options before you apply to change 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 reduce your mortgage term?
Reducing your mortgage term is usually easier than extending it as your mortgage debt will be repaid sooner than your lender had planned. You can improve your chances of being approved for a term reduction on your mortgage if you can:
- Prove that you can afford the increased mortgage payment that will result from a reduced term if you have a repayment mortgage
- Show that you can repay your mortgage balance by the end of the shortened term if it is an interest-only mortgage
Although your lender will get its money back sooner, it won't always follow that your application to reduce the term of your mortgage will be accepted. Your lender will make less money from the interest that it charges by reducing the term and it must also ensure that you are able to afford the increased monthly repayments if you have a repayment mortgage.
Despite the appeal of paying your mortgage off sooner, you should carefully assess how the increased mortgage payment will impact your household budget and ensure that you can afford to maintain this in the long term.
Can you reduce your mortgage term during a fixed-rate deal period?
Yes, it is possible to ask your lender to reduce your mortgage term during a fixed-term deal period however you may find that you are more likely to be allowed to make changes at the end of your fixed deal period. Lenders will use discretion and decisions on whether to allow a reduction to the term of your mortgage will be considered carefully as it may cause your monthly mortgage payment to increase. The decision will be based on your ability to afford the increased mortgage payment and your lender must ensure that your affordability is assessed to fit within the lending criteria for a reduced term.
If your lender does not allow a term reduction during the fixed deal period you can still get the ball rolling ahead of time.
Can you reduce your interest-only mortgage term?
Yes, it is possible to reduce your interest-only mortgage term as long as you can show your lender that you will be able to repay your mortgage balance sooner than originally planned. Again, this is entirely at the discretion of your lender and your application to reduce the term will be taken on its own merits. Lenders usually require you to share a plan about how your mortgage will be repaid at the end of the term of your mortgage so you will need to show how this has changed to an earlier date. Reducing the term of your interest-only mortgage will not change your monthly payments as the monthly payment is based on your mortgage balance and not your mortgage term.
Pros and cons of reducing your mortgage term
Pros
- The overall cost of your mortgage will be reduced
- You will own your home outright sooner
Cons
- Reducing the term on a repayment mortgage will increase the monthly payments
Alternatives to reducing the term of your mortgage
If you can pay your mortgage off sooner than planned, you should weigh up the costs and benefits of doing so. Although it will cost you less overall to do so, as you will pay interest over a shorter period, it is useful to consider the true benefits of doing so. Speaking with a mortgage specialist* could help you to understand how much money you will save and discuss alternative ways of using the extra money that you will spend.
Which lenders allow you to change your mortgage term?
Several mortgage lenders will consider a change to your mortgage term. The table below explains how four of the UK's top lenders 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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