Struggling homeowners extending the life of their mortgage

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by Kay Murchie

According to mortgage broker John Charcol, a growing amount of homeowners are choosing to extend their mortgage term in a bid to cut their monthly payments.

Rising food and fuel costs, along with soaring utility bills means that household finances are being stretched to the limit. As a result, the choice of cutting monthly mortgage payments by extending a mortgage term is a tempting prospect for many.

A sharp increase in homeowners choosing the ‘longer life’ option has been noted recently by mortgage brokers with between 10% and 15% of homeowners who have had to remortgage in the last 2 months, opted for this option after their current deal came to an end.

For example, on a 25-year mortgage, repayments on a £155,000 loan are £999 per month. Increasing the term to 30 years reduces payments to £929, while for a 35 year term, the monthly payment falls to £884.

However, homeowners must be aware that the costs overall increase significantly. With a £155,000 mortgage paid off over 25 years at a rate of 6%, the amount of interest paid is £144,601. However, over 30 years, that soars by £35,000.

Ray Boulger of John Charcol, said if a homeowner is looking to remortgage, they need to be able to afford the increased payments, if they can’t, the options available are extending their mortgage term or switching to an interest-only deal.

Francis Ghiloni of mortgage advice website, Mform.co.uk, adds that in order to make mortgage payments more manageable, borrowers should take as much action as possible rather than face repossession.

However, homeowners should ensure that they are not still repaying their mortgage while drawing their pension, concludes Mr Ghiloni.