The term of a mortgage – the time you have to repay the loan – is a crucial component of homeownership. Many homeowners ponder whether they can change their mortgage term. The answer is yes, you can adjust your mortgage term, but it’s essential to understand the implications. This article explores the pros and cons of both increasing and decreasing your mortgage term.
Increasing Your Mortgage Term
Pros
- Lower Monthly Payments: Increasing your mortgage term usually results in lower monthly payments. This can be beneficial if you’re experiencing financial strain or want to allocate funds towards other expenses.
- Increased Cash Flow: With reduced monthly payments, you might find more room in your budget, enhancing your day-to-day cash flow. This can be particularly useful for families needing extra money for living expenses or savings.
- Flexibility: A longer mortgage term can offer more flexibility. If your financial situation improves, you can often make overpayments to reduce the term later without needing to officially restructure the mortgage.
Cons
- Higher Overall Cost: Increasing the mortgage term means you’ll be paying interest over a longer period, which can significantly increase the total cost of your mortgage.
- Longer Debt Commitment: A longer mortgage term implies a prolonged period of debt, which can impact your long-term financial plans, including retirement.
- Equity Accumulation: Building equity in your property will be slower. This might affect your ability to remortgage or sell and move up the property ladder.
Decreasing Your Mortgage Term
Pros
- Less Interest Paid Over Time: Decreasing your mortgage term can save you a substantial amount in interest payments. The shorter the term, the less time there is for interest to accumulate.
- Quicker Path to Being Mortgage-Free: Paying off your mortgage faster can be mentally and financially liberating. It means fewer years of debt and more years of living without a mortgage hanging over your head.
- Building Equity Faster: A shorter term means you’re paying off the principal balance quicker, which helps in building equity faster. This can be beneficial if you plan to sell or remortgage in the future.
Cons
- Higher Monthly Payments: Decreasing the term usually means higher monthly payments, which can put a strain on your monthly budget, especially if your income isn’t very high or is unstable.
- Less Budget Flexibility: Higher payments mean less disposable income each month, which could limit your ability to deal with unexpected expenses.
- Risk of Overcommitting Financially: If your financial situation changes (e.g., job loss, reduced income), you might find yourself struggling to keep up with the higher payments.
Making the Decision
When considering changing your mortgage term, it’s important to:
- Assess Your Financial Situation: Consider your current and future financial situation. Can you comfortably afford higher payments if you decrease the term? Or do you need to lower your payments by increasing the term?
- Long-Term Financial Goals: Think about your long-term financial goals. Do you want to be debt-free as soon as possible? Or are you aiming to maximise your monthly cash flow?
- Consult with a Mortgage Advisor: Speak with a mortgage advisor who can provide personalised advice based on your financial circumstances and goals.
- Consider Remortgaging: If you’re looking to change your mortgage term, remortgaging can be an option. This involves switching your current mortgage to a new deal, potentially with a different lender.
- Check for Penalties and Fees: Be aware of any early repayment charges or fees associated with changing your mortgage term.
Conclusion
Changing the term of your mortgage can have significant financial implications. Whether you decide to increase or decrease your mortgage term, it’s crucial to weigh the pros and cons carefully. Each option has its benefits and drawbacks, and the right choice depends on your individual financial situation, goals, and risk tolerance.
Always seek professional advice to ensure that any decision you make aligns with your long-term financial wellbeing.
If you need help with an Agreement in Principle or full mortgage application and protection products available, contact one of our friendly team who would be happy to have a chat and help guide you through it all.