- April 5, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Considering Extending Mortgage Term
I am currently contemplating extending my mortgage term by an additional 10 years on a temporary basis. I am unsure if this decision is wise, but I would like to share my thought process behind it.
I have been 1.5 years into a 20-year mortgage with a fixed interest rate of 2.03%, which I am adamant about maintaining. If extending the term results in a new rate, it may be best to reconsider my plans.
## Financial Situation
I am not struggling to pay bills at the moment, but I find myself barely making any savings. Each month, I am able to save between £200-£300, only for unexpected expenses to arise, such as needing new tyres for my car or repairing a broken fridge. Furthermore, I am also investing money in renovating my home.
Currently, I have a balance of just over £4,000 on a credit card, with a 0% interest rate for another 14 months. I am voluntarily paying £250 per month towards this balance to reduce it gradually.
## Proposal and Potential Benefits
I am contemplating extending my mortgage to a 30-year term, which could potentially save me around £200 per month. With this extra cash flow, I could potentially clear my credit card debt by the end of the year.
Subsequently, I would have an additional £450 per month to allocate towards savings. After establishing a comfortable saving routine for approximately a year, I plan to begin overpaying my mortgage. Additionally, I anticipate receiving one or two pay rises during this period.
## Future Plans and Considerations
Once my mortgage reaches the 5-year mark and requires renewal, I intend to revert it back to a shorter term.
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(Source: https://www.gov.uk/government/publications/mortgage-charter/mortgage-charter)
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You won’t keep that rate, it will likely more than double. It wouldn’t surprise me if you were still paying the same amount a month but now over a longer term.
Edit: some people have pointed out that you can extend your term without affecting your rate (at least for the period where you have your fixed rate). But it does depend on your specific case and bank.
You’re paying 250 off the cc debt and 2-300 in savings so have 450-550 spare each month. Whatever is making that £100 difference, get a handle on it to make sure it’s £550 every month.
This really helped me in a similar situation – try a different way of thinking of this, you don’t have £0 savings and £4k debt, your cash balance is simply -£4k, each month you can increase that by £550. Do it, every month. Don’t pay off that 0% balance credit but put the £550 in easy access savings, you’ll have your £4k in 8 months and will pay off the debt on time but keep track of that total cash balance each month to motivate yourself not to dip into it unless there is a genuine emergency like fridge.
Tyres are less of an emergency, it sounds like you might not be budgeting for routine maintenance which is quite a common mistake (this was the last thing I added to my budget too!). It’d help you to start planning for things you might only pay once or few times a year like servicing, boiler maintenance, heating oil, Christmas ect. They all add up and can be thousands but aren’t something you want coming from an emergency fund.
Assuming they aren’t required maintenance, pause the renovations until you can afford them. It’s fine to slow down your savings to do the things you want and to improve your home but right now your savings are less than £0.
Your mortgage plan won’t work.
Sounds like a budgeting issue to me, primarily – I’d recommend YNAB (a zero-based budgeting app) for getting a proper handle on what you need to save for and how much you can put to paying off debt.
Get some advice from a Mortgage adviser with your existing lender.
It’s quite common to extend the term and retain your existing product as it’s unfair for a bank to penalise a customer who’s tied in to a product with penalties to make a necessary adjustment to make their payments more manageable.
Whether that’s the best thing for you to do is a different question altogether. From my experience it’s almost always a budgeting issue, and due to priorities of what to spend on. If the spending money on renovations around the house is essential at the moment, and there are no other cost savings to be made elsewhere, then this could be a good short term solution.
Bear in mind though circa 9/10 people will get used to having a larger disposable income and will never reduce their term back down later.
So normally I’d say you should have a mortgage term that ends when you plan to retire. For many people that can and should be over 30 years. So in principle going for a longer term is a good thing to do.
However. Were missing the woods from the trees a little bit here. If you’ve got credit card debt and can’t save… that’s bad. You probably need to look at your budget and improve your relationship with money and spending. Extending your term is a temporary solution, and as others have said will make less of dent when you remortgage and your rate is 2% higher anyway.
Hi /u/Manoxa, based on your post the following pages from our wiki may be relevant:
* https://ukpersonal.finance/credit-cards/
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If the CC overpayments are voluntary you could reduce those slightly and save. Not ideal but an option.
Ex broker. Look into this at the end of the current product. It’ll be a total new application even if you stay with current lender.
If you do it now you’ll lose the rate, likely have an ERC to pay too.
Also just take the very longest term you can at the start and use the 10% of balance overpayment allowance to effectively manage the term. This means your committed payment is a minimun but you control the term.
You really just need a shorter term to boost the committed payment when the 10% overpayment doesn’t cut it any more.
I’m doing pretty much this now. But the reason for this is we’re currently in a flat and found somewhere with a garden we can just about afford (and save for life punches) if we extend the term. And places with gardens in our price range are very rare. If we don’t jump on this place it could be years before we find somewhere else and we have a two year old. So I wouldn’t ordinarily recommend it, but it all depends on circumstances.
>I’m not struggling to pay bills
You borderline are.
You’re saving money by building equity. Money you can’t waste on your car because it’s inaccessible
If you are putting £250 per month towards paying off the credit card as it is you only have 16 months till it’s paid off, I would say that that £500 left at the end of the 14 month interest free period isn’t worth extending your morgage over…
You can find another way to scrape that together at the end of the day.
Ask if you can take a payment holiday for a few months to get your finances back in line.
Why would you think that you’d keep your rate if you extended 10 years. That would make no sense
You’re trying to make your excess spending seem viable. You’ll be in the same issue in 10 years if not careful. Pay the cc and crack on. If it’s stressing you sell a car and get a cheaper one or sell something else