Should I increase my mortgage term?

Longer mortgage terms will lower your monthly repayments but increase your interest overall.

Last week high street bank HSBC announced it would offer 40-year mortgage terms for its residential and buy-to-let borrowers.

“By extending the mortgage term we aim to help make mortgages more manageable with lower monthly repayments and homeownership a reality for our customers,” said Andrew Matson, Head of Mortgages at HSBC UK.

This isn’t an anomaly. According to Moneyfacts’ data, 68% of the residential mortgage market accommodates a maximum term of 40 years. This has increased from the previous year when this figure stood at 57%.

Other popular lenders also offer mortgage terms of this length. These include Halifax, the UK’s largest mortgage lender, and high street providers in Nationwide BS and Barclays Mortgages.

So, is it a good idea to increase your mortgage term? And could extending your term be made easier through the Mortgage Charter?  

One of the main benefits of increasing your mortgage term is to lower your monthly repayments.

For first-time buyers, this can make it easier to pass your lender’s affordability tests while for those already on the property ladder it could make monthly repayments more affordable.

This is discussed in more detail below.

However, Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, warned borrowers that increasing your mortgage term will increase the total interest owed.

“Those looking to extend their mortgage into retirement must ensure they also do not neglect their pension provisions, so it’s wise for them to speak with a financial adviser to assess their monthly commitments before changing their loan,” she said.

According to Moneyfacts’ data, the maximum term for a mortgage currently stands at 40 years.

Some lenders offer a reduced term of 35 years while others include 25 years. The best option for you will depend on your individual circumstances, so speak to a qualified, independent mortgage adviser to assess all your options.

Our preferred adviser is Mortgage Advice Bureau, which currently employs over 2,000 advisers across the UK.

In June, Chancellor Jeremy Hunt announced a set of standards which aims to help those worried by rising interest rates.

This is called the Mortgage Charter, which was subsequently signed by 85% of mortgage lenders across the UK.

It primarily allows borrowers to speak to their lenders for advice without it affecting their credit score. Lenders will then be able to offer their customers tailored support, of which proposing an extended mortgage term is an option.

Those who make this change will then have the option to revert to their original term within the first six months if their circumstances change. 

Extending your mortgage term isn’t a solution for everyone. This is why the Mortgage Charter allows for alternative solutions, such as temporarily switching to an interest-only deal.

While this provides some short-term relief, the capital needs to be repaid. This can be a lump sum payment when your finances experience some reprieve or when your monthly repayments will increase when the interest-only period ends. 

This is explained in more detail in a previously written article.

Otherwise, to understand interest-only mortgages in more detail, read our guide.