Would extending the term until remortgage in a few years make sense?

Ksw3

Hi,

We are a month away from our mortgage offer expiring with a fixed rate (5 years) at 2.5%. 

We are looking at how we can afford the mortgage if our offer expires. The new monthly amount would be 30% to 40% higher at today's rates. We could absorb some of this rise.

I see our options as: negotiate a price reduction, find a way for a higher deposit or walk away.

My question is, is there something else we could do with the length of mortgage for example if we increased from 25 years to 30 years and then reduced the term back again when we re-mortgaged in either 2 or 5 years (hopefully more favourable rates), would that make sense or just end up being more expensive in the long run? If so how much? Would occasional overpayments help (thinking about bonuses)?

We've saved for many many years so have a 71% LTV but it's mostly the monthly payments that are a concern if our offer expires. 

K_S

@ksw3 If it's the size of the monthly payments that you're concerned about then you're thinking on the right track. An increased term will indeed help and you don't really need to worry about reducing the term as you can achieve the same interest savings by simply making use of the 10% annual fee-free overpayment allowance (which will be available with all mainstream lenders).
https://blog.moneysavingexpert.com/2014/10/dont-shorten-your-mortgage-term-if-you-can-overpay/

So if your current offer expires (and can't be extended) then do make sure that you specify to the your broker (or run it past the lender in advance if direct) that you want to maximise the term and minimise monthly payments so that can be taken into account when they recommend a product and term. Some mainstream lenders will not go beyond 70, some will go to 75 or even 80. As long as they are all mainstream lenders, the difference in rates isn't likely to be huge.

Before all that, do check whether your current offer can be extended.

Ksw3 said:

Hi,

We are a month away from our mortgage offer expiring with a fixed rate (5 years) at 2.5%. 

We are looking at how we can afford the mortgage if our offer expires. The new monthly amount would be 30% to 40% higher at today's rates. We could absorb some of this rise.

I see our options as: negotiate a price reduction, find a way for a higher deposit or walk away.

My question is, is there something else we could do with the length of mortgage for example if we increased from 25 years to 30 years and then reduced the term back again when we re-mortgaged in either 2 or 5 years (hopefully more favourable rates), would that make sense or just end up being more expensive in the long run? If so how much? Would occasional overpayments help (thinking about bonuses)?

We've saved for many many years so have a 71% LTV but it's mostly the monthly payments that are a concern if our offer expires. 

Troy_af

Ksw3 said:

Hi,

We are a month away from our mortgage offer expiring with a fixed rate (5 years) at 2.5%. 

We are looking at how we can afford the mortgage if our offer expires. The new monthly amount would be 30% to 40% higher at today's rates. We could absorb some of this rise.

I see our options as: negotiate a price reduction, find a way for a higher deposit or walk away.

My question is, is there something else we could do with the length of mortgage for example if we increased from 25 years to 30 years and then reduced the term back again when we re-mortgaged in either 2 or 5 years (hopefully more favourable rates), would that make sense or just end up being more expensive in the long run? If so how much? Would occasional overpayments help (thinking about bonuses)?

We've saved for many many years so have a 71% LTV but it's mostly the monthly payments that are a concern if our offer expires. 

Sounds like you are in exactly the same position as myself, was literally just about to post the same question. I am looking at a 50% increase in monthly payments, given that my offer will be expiring before we complete, due to further delays.

Have a look at the online mortgage calculators. They will give you an idea of how extending the term will reduce payments, but massively increase interest. However, as mentioned, overpaying would then effectively eat away at the increased interest. So it is a balancing act.

My thought process is that if I can come up with an overpayment plan, so that in 5 years time I will be in the same position as I would have been on the old rate (same debt remaining), then it could be worth it. For me this would mean increasing the term by 5 years, but also over paying by around 10k over 5 years (which is probably achievable).

Troy_af

add to my last that we also considered walking away and lowering our budget. But then what if in 5 years the rates are back down again and you effectively lost a home that you could have afforded in the end.

born_again

Ksw3 said:

Hi,

We are a month away from our mortgage offer expiring with a fixed rate (5 years) at 2.5%. 

You might find that asking to extend will result in a new offer at a higher rate. Looks to be 4.5% upwards for 5 years. Not as you may hope based on your current approved rate.

There are 5 years for things to change. We will be having a general Election in 2025 which could change things either way.

While it is good you are looking at the end of your 5 year fixed term. Even the best financial crystal balls can not work that out.
As someone else mention over payment if you can afford, or build up a little nest egg.

Troy_af

born_again said:

Ksw3 said:

Hi,

We are a month away from our mortgage offer expiring with a fixed rate (5 years) at 2.5%. 

You might find that asking to extend will result in a new offer at a higher rate. Looks to be 4.5% upwards for 5 years. Not as you may hope based on your current approved rate.

There are 5 years for things to change. We will be having a general Election in 2025 which could change things either way.

While it is good you are looking at the end of your 5 year fixed term. Even the best financial crystal balls can not work that out.
As someone else mention over payment if you can afford, or build up a little nest egg.

Do you know what sort of ltv you will need to get 4.5%? My broker told me I am looking at around 5.5% min.

Ksw3

Troy_af said:

add to my last that we also considered walking away and lowering our budget. But then what if in 5 years the rates are back down again and you effectively lost a home that you could have afforded in the end.

That's a really interesting question and has changed my mindset a little. My partner is very much no, it's too much money so I think I'll have to crunch some numbers.

I think I might also have to accept that it will cost us more but it's about finding how much more is acceptable to us. I'm struggling to work that out at the moment! 

@K_S thank you for your comments, that's really helpful. Our mortgage offer is with Barclays. I'm not sure they do extensions unless you've exchanged but I'll double check with my broker.