Photo by Mortgage borrowers are facing a financial shock as mortgage rates continue to rise. With millions of mortgage borrowers set to remortgage this year from deals that were lower than 2%, many are looking for ways to manage their costs better. One option is to extend their mortgage term, which can reduce monthly payments. However, this decision should not be taken lightly.
Extending your mortgage term means adding to the number of years you were originally intending to pay back your loan, which can make your monthly payments go down. According to Pete Mugleston, MD and mortgage expert at Online Mortgage Advisor, 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.
Image: Mortgage rates have skyrocketed over the last two years
However, extending your mortgage term is not without its disadvantages. 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, which can impact long-term financial planning and delay milestones such as retirement or significant investments.
Image: Mortgage approvals have fallen to a record low
In fact, mortgage approvals have fallen to a record low, according to data from the Bank of England. The number of mortgage approvals fell to 9,273 in May, the lowest since comparable records began in October 1997. This highlights the scale of the hit to the housing market from the coronavirus lockdown.
Image: The housing market has been affected by the coronavirus lockdown
So, should you extend your loan or switch to an interest-only mortgage? The decision comes down to your financial situation and long-term goals. It’s essential to weigh the pros and cons carefully before making a decision.
Image: Weighing the pros and cons of mortgage options
In conclusion, extending your mortgage term can be a viable option for managing costs, but it’s crucial to consider the long-term implications. By understanding the advantages and disadvantages, you can make an informed decision that suits your financial situation and goals.
