Is it better to reduce the mortgage term or payments?
This is something that I deal with very frequently. Whether it’s better to reduce the mortgage term or reduce the mortgage payments is very much subject to your personal circumstances and what you’re looking for out of your mortgage.
If you reduce your mortgage term, you are reducing the interest you’re going to be paying on your mortgage. So if it’s a priority for you to get your mortgage cleared quickly and reduce that interest, you might take advantage of a drop in interest rate to make the mortgage term shorter by a couple of years.
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Some lenders allow you to make overpayments without penalties, but it’s essential to check if your mortgage has limits on overpayments or any charges associated. Consult your lender for specific terms.
Making overpayments can reduce your outstanding balance, improving your loan-to-value (LTV) ratio. This could make you eligible for better rates when refinancing or remortgaging.
Yes, you can remortgage to reduce the term, but it depends on the lender’s affordability checks. Ensure your income supports the higher payments over a shorter period.
Reducing your mortgage term can decrease the total interest you pay over the life of the loan. This helps clear your mortgage quicker. However, monthly payments will be higher, so ensure they are affordable for you.
Extending the term can lower monthly payments, providing more disposable income. Consider if you have big expenses coming, like a wedding. Extending increases overall interest paid, so weigh it against your needs.
Alternatively, you might have a big event coming up like a wedding or a special birthday that means you need to try and keep as much disposable income as you can. That would be the time to say to your mortgage broker that you want to reduce your payments. You could either do this by extending the term, or keeping the term the same but finding a better rate.
Can you remortgage and reduce the term?
Yes, absolutely, although this is subject to the lender’s affordability checks. So, for example, if we’re reducing a term from 30 years down to 28 years, we need to make sure that your original borrowing is still available over that shorter amount of time. We just need to make sure that your income and expenditure means that your new mortgage payments are still affordable.
Alternatively, if you are looking at releasing money and reducing your payments, you can extend the mortgage term. I remind my clients of this often – when you apply for the mortgage or whether you’re remortgaging for the fifteenth time.
For some First Time Buyers their priority may be to have a long mortgage term such as a 35 year term – but that can be reduced in the future. You’re not necessarily stuck with a mortgage for 35 years, especially if your income increases.
Not necessarily. Remortgaging at a lower rate can reduce payments, but fees and new rates should be considered. Always evaluate if the new terms benefit your financial situation.
A better credit score can make it easier to negotiate more favourable terms or raise your payment capacity. Maintaining a good credit score is crucial for financial flexibility.
Consider paying off high-interest debts first, as they usually cost you more in interest. This can improve your disposable income, allowing you to reduce the mortgage term later.
Adding family members to your mortgage can increase combined income, potentially improving loan terms. However, this means shared responsibility, and any default can affect all parties’ credit.
If you have a variable rate mortgage, changes in interest rates will directly impact your monthly payments, even if terms are reduced. Fixed rates offer stability against such fluctuations.
We did cover this in our ‘Stay or Move’ remortgaging episode recently, so if you haven’t listened to that particular podcast, do look it up. But there are two potential answers on whether to remortgage after a fixed term. Firstly, if you are reaching the end of a fixed term of a specific product such as a two-year fixed rate deal, then yes – that is the perfect timing to look at finding a new deal. If you don’t look at arranging a new deal either with your existing lender or a new lender, when your fixed term is due to end you will be put onto your lender’s standard variable rate. This is likely to significantly increase your monthly repayments. Alternatively, you might be looking at remortgaging after the term of your mortgage has ended. Say you’ve had a mortgage for the last 30 years and you’ve just made your last payment – you would then be mortgage free, so congratulations! However, you might decide that you want to raise some extra funds on your mortgage-free property. This is always an option. You could remortgage potentially to give your family members cash towards their house purchases, or to consolidate debts. This would be subject to the property value and the lender’s criteria on age and affordability etc.Should I remortgage after a fixed term?
What advice would you give someone considering whether to reduce their term or their payments?
If it’s something that you’re looking at, either making a saving on your monthly payment or changing your term, tell your broker. Let them know what your future plans are too, as it helps us find the most appropriate mortgage options for you.
We can go over things as many times as we need to, to make sure that we’re getting that budget right for you and help you achieve your goals.
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A mortgage broker can help identify suitable products for your goals and guide you through application processes. They ensure you understand terms and find beneficial rates.
Lenders consider your income, expenses, outstanding debt, and credit rating. They perform stress tests to evaluate if you can handle payments under different scenarios.
A shorter term reduces overall interest, freeing up future finances sooner. However, higher monthly payments might restrict current financial flexibility. Balance short-term needs with long-term goals.
Consolidating debts into your mortgage can lower monthly payments but increases the secured amount against your asset. Ensure the long-term costs and risks before deciding. Warning: Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Generally, you need proof of income, bank statements, ID, and details of current mortgage agreements. Lenders may request additional documents depending on your circumstances.