The pros and cons of extending your mortgage – and whether it help with rising costs – has been revealed. It is estimated that 1.6 million households will be remortgaging this year from deals which were lower than two per cent.
Pete Mugleston, MD and mortgage expert at Online Mortgage Advisor, warned : “This can provide significant breathing room, particularly when the cost of living is at an all-time high.
“Lower monthly payments can also improve cash flow, allowing homeowners to allocate funds to other essential expenses or savings.” He added: “This flexibility can be a lifeline for those struggling to get on the property ladder.”
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But discussing the cons, he went on and explained: “By spreading payments over a longer period, you end up paying more interest, which can significantly increase the overall cost of your home.” He added: “This extended financial commitment can impact long-term financial planning and delay milestones such as retirement or significant investments.
“A significant number of under 30s are opting for ultra-long mortgages that they will still be paying off during their retirement. This raises the question: will they have the means to afford the remaining mortgage payments in retirement?”
He explained: “Interest-only mortgages can provide temporary financial relief with lower monthly payments. However, they also come with risks. At the end of the interest-only period, you might face significantly higher payments or the challenge of securing a new loan potentially under less favourable terms. Additionally, since you’re not paying down the principal, you’re not building equity in your home during the interest-only period.”
He added: “Extending the mortgage term can offer immediate relief but at a higher overall cost, while an interest-only mortgage can provide short-term benefits with future risks. Consulting with a mortgage advisor can help tailor the best strategy for your unique financial situation, ensuring that your mortgage plan aligns with your broader financial goals.”