We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

Should I extend mortgage term if due large payout in 10 yrs

Options
Hi there 
we are due to renew next year and currently on 1.5% so it’s going to hit us bad. We owe 250k but have just inherited and plan to pay 100k off soon leaving £150k which will keep our monthly payments the same as what we pay now. My question is, my husband retires in 10yrs and will get a large bulk payment (£100k). I’m thinking therefore to extend our mortgage term so our monthly payments are cheaper as we know we can pay most of it off in 10yrs. Would that make sense? I’d like to benefit from paying the large bulk off now but only way to do that is extend the term. 
«1

Comments

  • Emmia
    Emmia Posts: 5,625 Forumite
    Fifth Anniversary 1,000 Posts Photogenic Name Dropper
    edited 22 July 2024 at 8:59AM
    You'll pay a lot more in interest if you extend the term, so the overall cost will be higher.

    For example, you owe £100k and have a mortgage rate of 4% 

    Paying it off in 5 years will involve a monthly payment of £1,842 and the total cost of the mortgage (including interest) will be £110,499

    Paying it off in 10 years means a monthly payment of £1,012 but a total cost of £121,494

    Paying it off in 15 years means £740 a month in payments, but a total cost of £133,144
  • MattMattMattUK
    MattMattMattUK Posts: 11,161 Forumite
    10,000 Posts Fourth Anniversary Name Dropper
    Personally I would not extend the term, neither would I bank on the £100k in ten years time, that is more than enough time for a company to go bust, so unless that is contractual (rather than discretionary), from a government department and completely iron clad, then plan to pay the mortgage off normally. 
  • Hoenir
    Hoenir Posts: 7,742 Forumite
    1,000 Posts First Anniversary Name Dropper
    Extending the term doesn't make it "cheaper".  Ultimately will cost you far more in terms of the amount of interst you'll pay. Also may leave you exposed to higher interest rate levels in the future. 
  • chile_paul2
    chile_paul2 Posts: 48 Forumite
    Fourth Anniversary 10 Posts Name Dropper
    Hoenir said:
    Extending the term doesn't make it "cheaper".  Ultimately will cost you far more in terms of the amount of interst you'll pay. Also may leave you exposed to higher interest rate levels in the future. 
    However - if the OP's plan is to pay off from a tax free pension lump sum and by reducing their mortgage payment currently they can increase payments into their pension then, dependant on their current marginal tax rate, it might be far more tax efficient and sensible to do what they suggest. Especially if increasing payments into their pension now would allow them to maximise employer contributions as well.
  • Emmia
    Emmia Posts: 5,625 Forumite
    Fifth Anniversary 1,000 Posts Photogenic Name Dropper
    edited 22 July 2024 at 9:31AM
    Hoenir said:
    Extending the term doesn't make it "cheaper".  Ultimately will cost you far more in terms of the amount of interst you'll pay. Also may leave you exposed to higher interest rate levels in the future. 
    However - if the OP's plan is to pay off from a tax free pension lump sum and by reducing their mortgage payment currently they can increase payments into their pension then, dependant on their current marginal tax rate, it might be far more tax efficient and sensible to do what they suggest. Especially if increasing payments into their pension now would allow them to maximise employer contributions as well.
    Is the OP planning to invest in pensions though? Not just use the extra cash on everyday spending, holidays etc. 
  • Emmia said:
    You'll pay a lot more in interest if you extend the term, so the overall cost will be higher.

    For example, you owe £100k and have a mortgage rate of 4% 

    Paying it off in 5 years will involve a monthly payment of £1,842 and the total cost of the mortgage (including interest) will be £110,499

    Paying it off in 10 years means a monthly payment of £1,012 but a total cost of £121,494

    Paying it off in 15 years means £740 a month in payments, but a total cost of £133,144
    Isn't that the wrong comparison though?

    Looking at the OP's question, they are effectively deciding between taking a 15/20/25 year term and in each case paying it off in 10 years.

    The actual differential cost is how much extra interest they would pay in the next 10 years, not over the original term of the mortgage.  Maybe that's what you calculated, but it doesn't sound like it to me.
  • Emmia
    Emmia Posts: 5,625 Forumite
    Fifth Anniversary 1,000 Posts Photogenic Name Dropper
    edited 22 July 2024 at 9:52AM
    Emmia said:
    You'll pay a lot more in interest if you extend the term, so the overall cost will be higher.

    For example, you owe £100k and have a mortgage rate of 4% 

    Paying it off in 5 years will involve a monthly payment of £1,842 and the total cost of the mortgage (including interest) will be £110,499

    Paying it off in 10 years means a monthly payment of £1,012 but a total cost of £121,494

    Paying it off in 15 years means £740 a month in payments, but a total cost of £133,144
    Isn't that the wrong comparison though?

    Looking at the OP's question, they are effectively deciding between taking a 15/20/25 year term and in each case paying it off in 10 years.

    The actual differential cost is how much extra interest they would pay in the next 10 years, not over the original term of the mortgage.  Maybe that's what you calculated, but it doesn't sound like it to me.
    I offered the figures as examples, the OP should do their own calculations (with one of the online tools) using the real numbers to work out the costs.

    If they take a longer term but pay off early, the cost of any Early Repayment Charge would also need to be factored in.
  • Hoenir
    Hoenir Posts: 7,742 Forumite
    1,000 Posts First Anniversary Name Dropper
    Emmia said:
    Emmia said:
    You'll pay a lot more in interest if you extend the term, so the overall cost will be higher.

    For example, you owe £100k and have a mortgage rate of 4% 

    Paying it off in 5 years will involve a monthly payment of £1,842 and the total cost of the mortgage (including interest) will be £110,499

    Paying it off in 10 years means a monthly payment of £1,012 but a total cost of £121,494

    Paying it off in 15 years means £740 a month in payments, but a total cost of £133,144
    Isn't that the wrong comparison though?

    Looking at the OP's question, they are effectively deciding between taking a 15/20/25 year term and in each case paying it off in 10 years.

    The actual differential cost is how much extra interest they would pay in the next 10 years, not over the original term of the mortgage.  Maybe that's what you calculated, but it doesn't sound like it to me.
    I offered the figures as examples, the OP should do their own calculations (with one of the online tools) using the real numbers to work out the costs.

    If they take a longer term but pay off early, the cost of any Early Repayment Charge would also need to be factored in.
    The current product is due for renewal next year. At that point a lump sum payment can be made. 
  • Hoenir said:
    Emmia said:
    Emmia said:
    You'll pay a lot more in interest if you extend the term, so the overall cost will be higher.

    For example, you owe £100k and have a mortgage rate of 4% 

    Paying it off in 5 years will involve a monthly payment of £1,842 and the total cost of the mortgage (including interest) will be £110,499

    Paying it off in 10 years means a monthly payment of £1,012 but a total cost of £121,494

    Paying it off in 15 years means £740 a month in payments, but a total cost of £133,144
    Isn't that the wrong comparison though?

    Looking at the OP's question, they are effectively deciding between taking a 15/20/25 year term and in each case paying it off in 10 years.

    The actual differential cost is how much extra interest they would pay in the next 10 years, not over the original term of the mortgage.  Maybe that's what you calculated, but it doesn't sound like it to me.
    I offered the figures as examples, the OP should do their own calculations (with one of the online tools) using the real numbers to work out the costs.

    If they take a longer term but pay off early, the cost of any Early Repayment Charge would also need to be factored in.
    The current product is due for renewal next year. At that point a lump sum payment can be made. 
    But not if they don't have the cash until 10 years' time.
  • Emmia
    Emmia Posts: 5,625 Forumite
    Fifth Anniversary 1,000 Posts Photogenic Name Dropper
    edited 22 July 2024 at 10:20AM
    Hoenir said:
    Emmia said:
    Emmia said:
    You'll pay a lot more in interest if you extend the term, so the overall cost will be higher.

    For example, you owe £100k and have a mortgage rate of 4% 

    Paying it off in 5 years will involve a monthly payment of £1,842 and the total cost of the mortgage (including interest) will be £110,499

    Paying it off in 10 years means a monthly payment of £1,012 but a total cost of £121,494

    Paying it off in 15 years means £740 a month in payments, but a total cost of £133,144
    Isn't that the wrong comparison though?

    Looking at the OP's question, they are effectively deciding between taking a 15/20/25 year term and in each case paying it off in 10 years.

    The actual differential cost is how much extra interest they would pay in the next 10 years, not over the original term of the mortgage.  Maybe that's what you calculated, but it doesn't sound like it to me.
    I offered the figures as examples, the OP should do their own calculations (with one of the online tools) using the real numbers to work out the costs.

    If they take a longer term but pay off early, the cost of any Early Repayment Charge would also need to be factored in.
    The current product is due for renewal next year. At that point a lump sum payment can be made. 
    The lump sum doesn't clear the mortgage next year,  it shrinks it, but there is still £150k to pay off.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 350.9K Banking & Borrowing
  • 253.1K Reduce Debt & Boost Income
  • 453.5K Spending & Discounts
  • 243.9K Work, Benefits & Business
  • 598.8K Mortgages, Homes & Bills
  • 176.9K Life & Family
  • 257.2K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.