Rising Trend in Extending Mortgage Payment Terms
Thursday 13 June, 2024
Recent findings from the Bank of England have shown that 25% of mortgages will conclude when the borrower is retired. This is because an increasing number of people are extending their mortgage terms to make monthly payments more manageable. But, is this right for everyone?
Current Mortgage Trends
Mortgage comparison site Uswitch has presented its own analysis on the subject, which has illustrated this trend. A significant 51% of mortgage borrowers now choose a mortgage term of 30 years or more. Between 2021 and 2023, the average mortgage term for first-time buyers has risen by one year, from 28 years to 29 years.
Remortgaging and Extended Terms
The most notable increase in term length has been observed in remortgaging. In 2021, the average term for remortgaging was 21 years. By 2023, this average term had extended to 23 years, marking a two-year increase.
There has also been a noticeable increase in the number of homeowners choosing mortgages with payment terms of up to 40 years, according to new research.
Property Prices and Affordability
Currently, the average property costs seven times the average person's salary, a substantial rise from the traditional four to five times salary guideline used by many mortgage lenders.
Factors to Consider When Extending Your Mortgage Repayment Term
Long-term Cost Implications
When considering a longer mortgage repayment term, borrowers need to understand that while extending the mortgage term can reduce monthly payments, it significantly increases the total interest paid over the life of the loan. Calculating the long-term cost is crucial to fully understanding the financial impact. Although lower monthly payments may make the mortgage more affordable in the short term, the extended repayment period results in a longer financial commitment, necessitating careful consideration of future income stability and financial goals.
Impact on Retirement
A mortgage extending into retirement can impact financial security during those years, as retirees often have fixed incomes and ongoing mortgage payments can strain their finances. Therefore, planning for retirement while managing mortgage payments is essential. Additionally, longer terms mean slower equity accumulation in the property, which can affect the ability to leverage home equity for loans or to sell the home for a significant profit if needed.
Interest Rate Changes
Borrowers should also consider the potential for interest rate changes, especially with adjustable-rate mortgages. Over a longer term, the likelihood of rate increases is higher, which can lead to higher monthly payments.
Financial Flexibility
Having a mortgage payment into retirement can limit financial flexibility and the ability to respond to unexpected expenses or life changes. Therefore, exploring alternative strategies, such as making extra payments to reduce the mortgage faster, can help lower the total interest paid and potentially shorten the term.
Professional Advice and Planning
James Ashaye, our Mortgage Broker and Protection Adviser in Edmonton, North London, said:
“Given these trends and the importance of future planning, it is crucial for potential homebuyers and those looking to remortgage to seek professional advice from a mortgage broker. Professional mortgage brokers can provide tailored guidance on the mortgage options available, taking into account the long-term financial implications of extended mortgage terms.”
James continued: “Our team’s expert mortgage advice can help our clients navigate the complexities of the mortgage market and make informed decisions that align with their financial goals and retirement plans.”
Conclusion
If you are currently considering your mortgage options, with a view to extending the payment terms, then Thomas Oliver Mortgage Advisers are here to help you. Simply call 01707 872000 to speak with a professional mortgage adviser to help you make a more informed decision regarding your mortgage options.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Sources:
https://www.mortgagestrategy.co.uk/news/mortgage-borrowers-stretching-term-further-uswitch/
Approved by The Openwork Partnership on 06/06/2024
