Bank forcing us to extend term to secure remortgage

Kerryblues

Hi guys, would appreciate any advice you could give me on this.

We had a remortgage agreed in principal. The term was 21 years - 5 years fixed rate with repayments of £1,075 per month. We are paying a broker to process the application.

He called today to say that the bank will only agree to the remortgage if we extend to 24 years. The bank are saying 24 years would be a better fit for their lending criteria - I.e. It gives a bit of a cushion I guess. The repayments would be £973 per month. I mentioned that we were really uncomfortable extending and that we could afford the £1,075 per month as it will be almost £170 less per month than what we now pay. He advised that we should over pay by £102 per month and that would balance it out. I.e. Ensuring it's payed off in 21 years. We can makes these overpayments and we were going to over pay anyway with the 21 year load but I can't help feeling that extending is the wrong way to go with this but I'm not sure what I'm missing here to fully understand the implications.

Could this affect us in 5 years when the term is up. Would we always be 4 years behind in terms of the loan length etc

We have an emergency fund for a rainy day and have no outstanding debt.

Am I worrying unnecessarily?

Thanks

getmore4less

Contractual term it not relevant to the actual term what you pay determines that.

Overpay and you determine your own term.

jamesd

The bank is being kind. The optimal term for safety is as long as you expect to live. That gives you the greatest repayment mortgage flexibility to reduce monthly payments in cases like unemployment or long term illness. It also allows you to maximise investments and improve your situation that way instead of via reducing mortgage capital more rapidly.

If you do want to reduce the term you can overpay. The mandatory monthly payments will probably be reduced as you do this but you can just increase the overpayments as the mandatory minimum reduces. eventually you may have a Pound a month on the mandatory minimum and your last overpayment will clear the remaining balance, ending the mortgage as fast as your payments have allowed it to happen.

There's no difference in cost between overpaying and having it in the normal monthly payment, assuming you were to make the payments on the same day.

haras_nosirrah

The broker is right. Take the 24 years and overpay to be the same as what you want to pay

While you think the amount is affordable over 21 years this is probably due to very low interest rates. The lender is looking at the amount on a 7% interest rate and deciding if that is affordable as there is no guarantee you will be able to remortgage at the end of that fixed rate.

dimbo61

With the new MMR rules where lenders are even asking how much do you spend on a hair cut they want to be seen as responsible lenders.
Now the Computer may say NO to a 21 year term because it is TOO big a percentage of your take home income each month but YES to a 24 year term.
Just overpay every month by £150/200 and clear your debts asap.

betmunch

This is due to the rules on affordability. With regular overpayments it will make no difference. I have had 2 cases like this recently and think we will see many more in future.

Also I'd like to point out they are not forcing you to take it, they are offering you an option to proceed when the term you have applied for will be rejected.

amnblog

Hi Kerry


Your broker has not communicated this very well to you by the sound of it.


It is common for mortgage term to materially affect client affordability in this way.


The lender is saying they will lend but consider you are being too ambitious in your intended term. They need to be able to satisfy the regulator if questions are later asked and have suggested a longer term. If you do prove you can overpay and keep on track for the shorter term - no harm is done.


Your broker should have made it clear that the decision does not affect your ability to run the mortgage for the term you prefer (subject to overpayment limits).


If finances later get tight and you need to reduce your payments to the contracted rate you will be glad of this advice by the Lender.


Everybody wins.

Rollinghills

As others have said , with longer term you get extra flexibility. If you need a bit of extra cash one month you just make the regular payment. Otherwise overpay by however much you want / can, that will shorten your term.

If you are good with money and will be committed to overpaying then in my view getting a longer term is always advantageous as it's more flexible.

Just check how much you can overpay each year and the best time to make overpayments, your broker should help you with that.

andyfromotley

Not a problem, go with it and overpay.

stator

But remember to watch out for the repayment penalty if you overpay too much on a fixed rate deal.

shimano

As everyone says, not really an issue (as above check ERC but doubt it will be a problem as typically it would be 10% of the capital anyway, which £100 or so a month will make no difference)

We increased the term not because of MMR but to have that security in case, but overpay to bring the effective term down.