3 practical reasons you might review your mortgage term

You don’t have to stick to the initial mortgage term you choose. In fact, there are several reasons why you might shorten or lengthen it.

The term is the length of time you’ll repay your mortgage. As a result, it could affect both your short- and long-term finances. Usually, a shorter mortgage term will mean your monthly repayments are higher, but you’ll pay less interest overall. Conversely, a longer mortgage term will typically have lower monthly repayments, but the total cost of borrowing will be higher.

Many first-time buyers opt for a 25-year or longer mortgage term to help manage their outgoings. However, as your circumstances or goals change, you could benefit from reviewing your mortgage term.

When a mortgage deal ends, it’s a good time to review the term, as you can assess how adjustments might affect your budget.

You should note that your lender may carry out an affordability assessment if you want to change the term.

Here are three reasons you might want to change your mortgage term.

1. You want to be mortgage-free sooner

Becoming mortgage-free is a milestone for many families, and shortening your mortgage term could mean you reach that goal sooner by increasing your monthly repayments.

For example, if you have a £200,000 repayment mortgage with a 20-year term and an interest rate of 4.5%, your monthly repayment would be around £1,265. If you wanted to halve the term and become mortgage-free in 10 years, your repayments would rise to around £2,072.

Not only would you be mortgage-free sooner, but you could also reduce the amount of interest you pay in total.

In the scenario above, repaying the sum over 20 years would mean paying more than £103,000 in interest. By cutting the term to 10 years, the total interest paid over the full mortgage term would fall to under £50,000.

So, if your financial circumstances have improved since you last reviewed your mortgage, you could benefit from reducing the term.

Before shortening your mortgage term, calculate how the change could affect your repayments. Would they remain affordable if you experienced a financial shock?

Falling behind on your mortgage could result in additional fees, affect your credit rating and increase the risk of your home being repossessed. As a result, it’s important to feel comfortable with your ability to meet repayments.

2. You want to reduce repayments to improve your cash flow

You might choose to extend your mortgage term if you’re struggling financially or want to improve cash flow to support other goals. A longer mortgage term allows you to spread the cost of repaying your mortgage over a longer time frame, so the repayments would usually fall.

Of course, it’s important to note that this decision is likely to mean you’d pay more interest overall. Calculating how extending the mortgage term could affect the total interest you’d pay could help you assess whether it’s the right decision for you.

3. You want to change your mortgage balance

There are several reasons why you might want to increase the amount you borrow through a mortgage. Perhaps you plan to move home and purchase a more expensive property or you want to borrow more to fund a renovation project.

Keep in mind that you’ll often need to complete mortgage affordability checks if you want to increase your borrowing. Your personal circumstances and your lender’s criteria could affect the outcome.

Similarly, you may want to make a significant overpayment to reduce your mortgage balance after you’ve received an inheritance or work bonus.

A change in your mortgage balance could prompt you to review how it will affect your outgoings, and whether adjusting the term could be appropriate.

We could help you assess your mortgage

If your mortgage deal has expired or will soon, please get in touch. We could help you assess which option might be right for your circumstances and understand how the term could affect your short- and long-term finances.

Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.