Can I extend my interest-only mortgage term?
Yes, it is possible, but it's not always a straightforward process as most lenders will have their own terms and lending criteria. Remember, interest-only mortgages are considered riskier by lenders, which can make extending the term more challenging.
One option your lender may suggest is switching to repaying just the interest on the loan until you are on a surer financial footing. In some cases of financial hardship, lenders may even agree to extend the interest-only repayment period beyond the initial period to give you more time to improve your situation.
A typical interest only mortgage lasts between five and 25 years. It's possible to remortgage to a new deal at any time, which is often a good idea if interest rates have changed. You can also remortgage at the end of the deal – but you will need to meet affordability criteria.
This would be allowed at your lender's discretion as you are tied to the terms and conditions of your fixed-rate deal. You can apply to your lender for a term extension and they will decide whether to offer one after applying their lending criteria to your current circ*mstances.
Can I switch from interest-only to repayment? You can move your interest-only mortgage to a repayment one, either by remortgaging or by product transfer. It's worth talking to a mortgage broker about this to make sure you find the best value deal when you switch.
It is possible to extend the term of an interest-only mortgage, but it will depend on both the lender's discretion and your financial situation. You may need to provide evidence of your income and expenditure, and show that you will be able to afford the increased payments once the interest-only period ends.
For a set period (for example, five years), you pay nothing off the amount borrowed, so it doesn't reduce. At the end of the interest-only period, the loan will change to a 'principal and interest' loan. You'll start repaying the amount borrowed, as well as interest on that amount.
If you have an interest-only mortgage, you need to make plans to repay the capital (the amount you borrowed). If you don't, you will have a large amount to pay at the end of your mortgage term and may need to sell your home to repay it.
- You will need to pay off the full amount borrowed in one go.
- You will pay more interest because the loan amount stays the same.
- You will need to monitor your investments as well as your mortgage.
- You could end up out of pocket if your repayment plan underperforms.
What are the disadvantages of interest-only mortgages? The biggest disadvantage is the pressure of knowing that you have to ensure the loan is repaid in full at the end of the interest-only mortgage term.
Can I extend my mortgage term without refinancing?
Ask your lender for a loan modification
Each lender offers its own loan modification program, which could include options such as temporary forbearance or permanently reducing your monthly payment by extending your loan term length or lowering your interest rate.
There won't be a new affordability check (to examine your income and outgoings), and your credit score won't be affected. And within six months of switching to a longer term, you can switch back to your original term if you want to.
A borrower can only get this type of mortgage through a loan modification program. Homeowners with an FHA loan who are experiencing financial hardship and are unable to afford their current mortgage payment may be able to lower their monthly payment by extending their loan term to 40 years.
Yes, it may still be possible for you to extend your term if you're looking to borrow additional funds or remortgage to release equity.
An insurable mortgage may let you extend to 25 years
This scenario would make sense if you're at your second or third renewal (assuming standard 5-year terms), where the extra-years extension may substantially lower your monthly mortgage payment despite a slight bump-up in rate.
You can switch between repayment options during the life of your loan, however there are limits on how long you can have an Interest Only period. Interest Only payments are not available within the last 5 years of your contracted loan term.
If you're interested in keeping your month-to-month housing costs low, an interest-only loan may be a good option. Common candidates for an interest-only mortgage are people who aren't looking to own a home for the long-term — they may be frequent movers or are purchasing the home as a short-term investment.
Interest-only periods usually last between 3 and 5 years. Some lenders offer interest-only periods of up to 10 to 15 years, but this may be restricted to investors.
An interest-only loan means you'll have more cash available to cover other costs, or invest elsewhere. You can use a mortgage calculator to work out how much extra cash you'd have if you switched from a principal and interest loan to an interest-only loan. It's typically hundreds of dollars per week.
Interest only strategy
It can optimise your ability to hold property, reduce the amount you need to borrow for a future home and grow your savings balances at the fastest rate possible to manage risk and invest. With interest only repayments, you have an increased net monthly surplus.
How common are interest only mortgages?
Interest-only mortgages make up 9% of the total number of regulated mortgages, and part-and-part mortgages make up 3%. The remaining 88% are capital and interest mortgages.
You'll make interest only payments towards your mortgage for six months, with no impact on your credit score. You can cancel at any point, but you can only apply once. Your monthly payments will increase at the end of the reduced payment period to collect the amount you haven't paid.
Do Large Principal-Only Payments Reduce Monthly Payments? No matter how many principal-only payments you make on a fixed-rate mortgage, your monthly payment stays the same unless you recast your mortgage. You'll end up making fewer total payments and paying off your mortgage faster.
and that they know what kind of loan options they're looking for. With these elements in place, consumers can position themselves to negotiate mortgage rates by asking their lender to lower interest rate and asking for mortgage rate discounts.
While your minimum monthly payment remains higher, paying down the principal requires less money upfront than recasting and you can make extra monthly payments. Recasting is better when you have a financial windfall or large cash reserves but want lower ongoing repayments.
