Extend The Loan Period To Cut Repayments

At a time when household bills are on the rise, people are looking for ways to keep their mortgage costs down. One way is to extend the period of their mortgage loan, taking it above the normal 25 years. This can keep monthly repayments down, but costs more in the long term.

Mortgage brokers have noted a steep increase in the number of customers taking the option of an extension to their mortgage when their existing deal ends.

Homeowners are trying to find ways to cut their monthly repayments – and one way is to extend the period of their mortgage. Brokers report that around one in ten people who have remortgaged in recent months have taken this path.

For a regular 25-year mortgage of £155,000 the repayments are £999 each month. But, for a 30-year mortgage the repayments fall to £929, and they drop to £884 for a 35-year term.

At a time when all bills in the home and car are increasing a saving of £70 a month is obviously very handy to many homeowners.

Anyone remortgaging now, switching from a fixed deal from two or three years ago will either be faced with much higher payments or be seeking some way of avoiding them. Selling the house would be the most drastic step – especially at a time when prices are going down and there are very few buyers – so cutting repayments by extending the mortgage period looks like a very good alternative.

Of course, in the long term such a move will cost the mortgage holder more money as they are paying out over a longer period of time. A five year extension to a £155,000 mortgage means an increase of £35,000 in overall repayments. That’s why – apart from selling the house – this really is a last resort option. It is also sensible not to extend the mortgage so that it is being paid in retirement.

Another option is to move part of the loan to an interest-only basis. This will reduce monthly payments, but it must be remembered that the capital for the interest-only part of the loan will have to be repaid at the end of the term.