Increasing Mortgage Term - have I understood correctly?

superstylin

Hi all,

I'm currently on a fixed mortgage ending in May 2023. I pay £700 a month currently, the interest rate is 2.14% and remaining term is 16 years with £113,128 left to pay. 

I've been advised by my current lender HSBC that I can increase my term to keep the monthly payments comfortable. 

So, rate from HSBC is 5.14% on 5 yr fix. 
If I stuck to 16 yr term we'd pay £869 a month. 
If I went for a 23 yr term we'd pay £700 as we are currently. 

We could pay the higher payment with careful budgeting but I'm considering keeping the £700 a month so we have wiggle room in case of further cost of living increases or emergency spends, and overpaying up to the difference of £169 when able (potentially most months)

I'm aware that over the longer term we'd pay much more in total interest with a longer term if I don't make the overpayments BUT I'd be looking to remortgage after the new 5yr fix ends anyway and bring the term back down. 

As far as I can tell increasing the term and overpaying is a win win situation BUT I don't know if I'm missing something in my ignorance?

Thanks for any help/clarity!

simon_or

You are spot on. Decreasing the term (and locking in higher monthly payments) or increasing the term (and voluntarily overpaying) will help you achieve the same interest rate savings.

Gives you the flexibility of reducing payments if need be.

There's an article on the moneysavingexpert website which explains this.

ACG

Youve got it right. 
I did my mortgage over 35 years for the flexibility - being self employed we have good and bad months and with times like they are, I am not stressing about the monthly repayments. 

superstylin

Much obliged Simon_or and ACG.That settles my mind and decision. Longer term mortgage and over payments it is 👍

BikingBud

Focus on paying off sooner as the extra 7 years may cost you £24k more in interest.

superstylin

BikingBud said:

Focus on paying off sooner as the extra 7 years may cost you £24k more in interest.

Hi BikingBud yes I plan on overpaying throughout the 5 yr fix and then reducing the term again once the fix ends (all being well with the economy that is!).