Interest-only mortgages are enticing to most people since the monthly payments are lower than on capital repayment mortgages.
But at the end of the term, you need to repay the entire capital, so you need a repayment vehicle that can do this for you.
However, if you don’t have that ready, another option is to ask the lender for an extension on the term, thus postponing your repayment date.
In this article, we will explore the question of “Can I extend my interest-only mortgage term?”, why you might want to consider this option, and associated concerns.
Let’s get going.
Table of Contents
Can I Extend My Interest-only Mortgage Term?
Long story short, extending an interest-only mortgage term is possible, but this is by no means a guarantee and depends on the lender’s discretion.
Since interest-only mortgages are considered a riskier alternative, applying for an extension might only sometimes work out.
The essential factor here is to look at all possible options as you near the end of your term.
Delays might lead to hasty decisions, which can have negative consequences in the future. So, if you need to extend your term, make sure you’re planning ahead of time.
When you extend the term on an interest-only mortgage, it gives you more time to repay the capital.
However, you’ll need to pay more overall since you’ll be charged interest on the extended term as well.
Usually, interest-only mortgages have a term length of between 5 and 25 years. However, lenders may consider extending the term to 30 years and maybe even to 40 years in special cases.
This is, of course, less usual and depends a lot on the lender as well as the borrower’s profile.
Why You Might Consider Extending Your Interest-only Mortgage Term
There can be many situations where you need to extend the term of your interest-only mortgage.
The most important of these might be the fact that you currently don’t have a suitable repayment vehicle ready, but the extension might allow you to arrange for it.
Depending on the situation at hand, extending the mortgage term might be a good idea.
At the same time, it’s important to recognise that when you extend your mortgage term, you’ll end up paying more in terms of interest.
Also, since you’re only repaying the interest, your equity buildup will be slower, and you need to rely on the property price increase to get a substantial equity boost in your property.
Steps To Extend An Interest-only Mortgage Term
1. Perform A Financial Evaluation
The first step is to review your mortgage terms, such as the balance you’re still required to pay, the repayment date, your present interest rates and financial circumstmaces.
At the same time, you’ll need to assess your liabilities and assets to understand whether you can pay off the loan in full, pay it partly, or look for a term extension.
2. Do A Credit Check
Next, perform a credit check to understand if your extension application will be strong enough for approval.
Extensions might not be possible if you have severe credit report red flags, so it’s best to self-assess your situation from the get-go. In case of any inconsistencies, you can take steps to get those corrected.
This is alongside meeting other lending criteria of course that the lender will ask to be met.
3. Consult With A Mortgage Broker
At this point, we recommend speaking with a specialist mortgage broker who can guide you through the details of the extension process.
Since brokers have detailed market experience, they can assess your situation and let you know if you’ll be eligible for the extension or if there are better alternatives.
Frequently Asked Questions (FAQs)
1. What are the alternatives to mortgage term extension?
There are multiple alternatives you can consider apart from a mortgage term extension, such as:
- Downsizing, which means selling the present property and buying a cheaper one and using the proceeds to pay off the loan
- You could also try to remortgage with a new lender under more favourable terms
- For those over 55 years of age, Equity Release schemes are also suitable
- You might also consider switching your product to a retirement interest-only mortgage
2. What are the factors that affect your eligibility for an extension?
The following are some of the factors that might affect your eligibility for an extension:
- Loan-to-Value ratios
- Affordability
- Credit rating
- Age
3. Is mortgage term extension the same as remortgaging?
No, it’s not. Getting a mortgage term extension simply means extending the due date of the mortgage repayment to a later date on your current mortgage. Remortgaging is the case when you’re converting your existing mortgage to a new mortgage plan, with a different lender usually with more suitable terms and lower rates.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
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