Interest and extending term of mortgage

Legendofstevebull

Please can somebody help with a something I am struggling to get my head around?!

I am due to remortgage at the beginning of 2026. I'm currently considering a 2 year fix.

My current mortgage has a low rate of 1.33% and has a term of 13 years left to run (and I have about £190,000 left to pay).

I have also been saving funds separately (rather than overpaying because of my mortgage low rate) so that when I remortgage I can pay a chunk off the balance (probably £70k ish). I am hoping to pay the mortgage off within the next 4 years or so by paying off lump sums when I remortgage (or overpaying depending on mortgage rates vs savings rates)

So my question is this...  If when I remortgage I extend the mortgage to a longer term (i.e. say to 20 years), which will reduce any monthly repayment due, do I pay less interest over say the initial term (2 years probably)?  I could then save any surplus funds I have in a separate savings account and then use these to pay off some of the outstanding balance in 2 years' time when remortgaging once again.  

Or does it not make any difference?  I assume it doesn’t as I am still paying interest entire outstanding balance, and on this basis, I would probably end up paying more in interest if anything by extending my term as the balance would not be coming down so quickly. Is my understanding correct? 

Many thanks

 

Hoenir

Legendofstevebull said:

So my question is this...  If when I remortgage I extend the mortgage to a longer term (i.e. say to 20 years), which will reduce any monthly repayment due, do I pay less interest over say the initial term (2 years probably)?  

 

Nope. The longer the term. The lower the amount of capital that is repaid every month. The greater the amount of interest you'll pay. 

“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn't … pays it,” - Albert Einstein

South_coast

The interest rate will determine the amount of interest, as it is a percentage of the outstanding balance. Extending the term will make the payments smaller, but you'll end up paying a lot more if the mortgage runs to its full term. If however you would use the difference between the payments due on the current term and the extended term to continue saving so that you could then overpay a larger amount at the next remortgage, then it might possibly work out in your favour (even though the balance owed and therefore interest charged would be coming down a lot slower). It would depend on the interest rates available for saving and borrowing at the time, and how savings rates may vary during the length of the fix. You'd need to do some calculations to see how it works out. 

But keeping the term the same is the more straightforward option. 

If you have a lot available for saving/overpaying, then you could also consider shortening the term. It would commit you to a higher monthly payment, but also bring the balance (and therefore interest charges) down a lot faster

saajan_12

Legendofstevebull said:

Please can somebody help with a something I am struggling to get my head around?!

I am due to remortgage at the beginning of 2026. I'm currently considering a 2 year fix.

My current mortgage has a low rate of 1.33% and has a term of 13 years left to run (and I have about £190,000 left to pay).

I have also been saving funds separately (rather than overpaying because of my mortgage low rate) so that when I remortgage I can pay a chunk off the balance (probably £70k ish). I am hoping to pay the mortgage off within the next 4 years or so by paying off lump sums when I remortgage (or overpaying depending on mortgage rates vs savings rates)

So my question is this...  If when I remortgage I extend the mortgage to a longer term (i.e. say to 20 years), which will reduce any monthly repayment due, do I pay less interest over say the initial term (2 years probably)?  I could then save any surplus funds I have in a separate savings account and then use these to pay off some of the outstanding balance in 2 years' time when remortgaging once again.  

Or does it not make any difference?  I assume it doesn’t as I am still paying interest entire outstanding balance, and on this basis, I would probably end up paying more in interest if anything by extending my term as the balance would not be coming down so quickly. Is my understanding correct? 

Many thanks

 

It DOES make a difference - if you extend the mortgage term, you'll pay off less capital each month, and hence more interest over the life of the mortgage. Also you're usually limited to overpaying around 10% of the mortgage amount, so if your regular payments are reduced, the total amount you can pay off is lower. 

So there's no benefit in keeping the term long unless 
(a) you could have cashflow issues and need access to it - but if you're expecting to pay off in 120k in 4 years then this probably isn't an issue
(b) if the mortgage rate is much less than the savings interest -> but that's unlikely at the start of a new remortgage, as both will be around the BoE rate at the time, adjusted based on how long the fixed term is.