Should I extend my mortgage to lower my monthly costs?
Extending your mortgage can help cut monthly costs, but could work out more expensive in the long term. Our guide helps explore your options.
Key takeaways
Extending your mortgage term lowers monthly payments but increases total interest costs over time
Half of new UK mortgages in 2024 had terms of 30 years or more, reflecting a shift towards longer repayment periods
Lenders consider factors like affordability, loan-to-value ratio, and age when approving mortgage term extensions
The government’s mortgage charter allows homeowners to revert to their original term within six months of an extension
In the UK, the traditional mortgage term has been 25 years. However, recent trends indicate a significant shift towards longer mortgage durations.
As of the first quarter of 2024, 50% of new mortgages had terms of 30 years or more, a substantial increase from 12% in 2005.
What does it mean to extend your mortgage term?
Extending your mortgage term means adding to the number of years that you were originally intending to pay back your loan.
For example, if you took out a 25 year loan, you can ask to extend this to 35 years, adding ten years to your mortgage. This can help keep monthly costs down, but will mean paying more in interest in the long term.
Under the government’s mortgage charter, you can request to go back to your original term within six months of requesting an extension from your current lender.
This is designed to help homeowners get financial breathing space. Check with your lender if they are signed up to the mortgage charter.
What are the pros and cons of extending your mortgage term?
Here are the advantages and disadvantages you should consider when weighing up whether to extend your mortgage term:
Pros
Lower monthly repayments
Helpful if you have an interest-only mortgage and require more time to pay off the total amount of the loan
Great if you have new major monthly costs to consider
Good if you are at the end of a fixed-term mortgage and your interest rates are set to rise, making repayments at current terms unaffordable
Cons
Means you’ll pay more in interest over the total term of your mortgage
Will take longer to pay off
May not be available for those over 40, as lenders not keen to extend terms into old age
Example: Extending a mortgage term to reduce monthly payments
The following example illustrates how you can reduce monthly payments by extending the mortgage term, but will pay more interest in the long run.
Sarah took out a 25-year repayment mortgage five years ago for £200,000 at an interest rate of 3%, with monthly payments of £948. She has now reached the end of her fixed-rate deal, and due to rising interest rates, her lender is offering a new deal at 5%.
If she keeps her remaining 20-year term, her new monthly payment would increase to £1,319. To make repayments more affordable, Sarah chooses to extend her mortgage to 30 years instead. This reduces her monthly payment to £1,074, saving her £245 per month.
However, the total cost of interest over the loan’s lifetime increases:
Remaining 20-year term at 5%: £116,560 in total interest
Extended 30-year term at 5%: £186,511 in total interest
By extending her mortgage, Sarah saves in the short term but pays £69,951 more in interest over the long run.
Want to see how extending your mortgage term could affect your payments? Try our mortgage calculator to compare your options.
Can you extend the term of your mortgage without needing a new loan?
If you want to extend your mortgage without remortgaging and switching to a new supplier, you will need to speak with your lender directly. This is especially important if you are struggling to make regular monthly payments.
While many lenders will allow you to extend your mortgage, they may want to carry out an affordability assessment, although usually, if repayments are being lowered, this won’t be the case.
They will also weigh up your age. Most lenders will not extend a term beyond your 75th birthday – although some are now offering longer, 40-year plans.
The government’s mortgage charter means that if, within six months, you can afford to go back to your original term, you can. If you opt to do so after six months, then you will need to go through an affordability check.
Read more: How does mortgage interest work?
Does extending your mortgage affect your credit score?
No. Extending your mortgage should not affect your credit score. If you extend your deal with your existing lender and they do not carry out an affordability assessment, then your credit score will remain unaffected.
If you remortgage, the credit check required by your new lender may affect your credit score. Also, if you get into arrears or get a dedicated loan plan from your lender beyond a simple extension, this will appear on your credit report.
How can I reduce my monthly mortgage payments?
If you are struggling to make your monthly mortgage payments, the first thing you should do is call your lender. Ignoring the problem is not the best course of action.
Under the government mortgage charter, anyone can call their lender and discuss such issues without it impacting their credit scores.
There are a number of ways to reduce monthly mortgage payments:
Such deals mean you only pay off the interest of your loan, with the capital due to be paid at the end of your term. This can be a helpful short term solution while assessing how to boost funds to pay off a repayment mortgage.
This will cut monthly repayments, although it will mean repaying more in the long term due to higher interest.
Selling and moving to a smaller home can help lower costs.
Such loans are not repayable until the homeowner dies or needs to move into residential care.
How to reduce monthly mortgage payments
Switch to an interest-only mortgage
Extend your term
Downsize your property
Use equity release to pay off your mortgage
Can I remortgage to lower payments?
Remortgaging can be a useful way to reduce your monthly payments, but whether you’re able to depends on several key factors. Here’s what you need to consider:
If you’re coming to the end of a long fixed-rate mortgage, you may have locked in a deal when interest rates were historically low.
If rates have risen since then, your new mortgage could be more expensive, even if you switch lenders. On the other hand, if you were previously on a higher fixed or variable rate, moving to a new deal could reduce your payments.
The more equity you have in your home, the lower your loan-to-value (LTV) ratio. A lower LTV often means access to better interest rates, as lenders see you as a lower risk.
If your property value has risen significantly or you’ve paid off a large chunk of your mortgage, remortgaging could secure you a better deal.
If rates are expected to stay high or rise further, locking in a deal sooner rather than later could help manage costs.
Conversely, if rates are predicted to fall, you might consider a short-term deal or a tracker mortgage that could decrease in cost over time. Your lender will assess these factors when offering you new terms.
Lenders will reassess your finances when you apply for a remortgage. If your income has dropped, your expenses have increased, or your credit score has worsened, you might not qualify for the lowest rates.
However, if your financial situation has improved, you may have access to better mortgage options than before.
If you’re nearing retirement, lenders may be cautious about offering an extended mortgage term. Shorter terms mean higher monthly payments, which could limit your ability to reduce costs through remortgaging.
Some lenders have maximum age limits, while others may require proof of retirement income to approve a new deal.
Things to consider before you remortgage for lower payments
Your original mortgage deal
How much equity you have built up
The current interest rate climate
Your affordability and credit rating
Your age and mortgage term options
Personal Finance Expert
Our expert says...
“Extending your mortgage term can lower monthly payments, making them more affordable in the short term. However, it means paying more interest over time, increasing the total cost of your loan. It’s a useful option for managing finances but should be carefully weighed against long-term affordability and even retirement plans.”
Our other mortgage guides
For more information on mortgages, check out some of our other guide pages:
Your home may be repossessed if you do not keep up repayments on your mortgage.
