An increasing number of financially hard-pressed homeowners have decided to extend the life of their mortgages in order cut monthly repayments, mortgage broker John Charcol revealed.
According to the research, between 10 and 15 per cent of people who have had to remortgage in the last two months took out a 'longer life' option after their current deal ended.
For a loan amount of £155,000, monthly repayments are £999 on a 25-year mortgage deal, whereas increasing the term of the mortgage will cut payments to £929 for a 30 year term and £884 for a 35 year term.
With the cost of living soaring, family finances are stretched to the limits and the option to cut monthly mortgage
repayments or switch to an interest-only mortgage
is very tempting – especially for those fearful of repossession.
"The key thing is that a homeowner who needs to remortgage must feel they can afford the higher payments," Ray Boulger, senior technical expert at John Charcol said.
He continued: "If they cannot, it is much better to either extend their mortgage or switch to an interest-only deal. These are much better options than the alternative which is to struggle with their mortgage."
However tempting the extension of a mortgage term is to cut repayment costs in the short term, it may add tens of thousands to the overall cost of the loan and should only be used as a last resort.
For instance, the cost of a £155,000 loan at an interest rate of 6 per cent would be £144,601 over 25 years, but jumps by a whopping £35,000 if the term is increased by 5 years.
Francis Ghiloni, business development director of the mortgage advice website Mform.co.uk recommended: "It is far better to do something such as extending the mortgage term or even moving part of the loan to an interest-only basis than just putting your head in the sand and hoping for the best.
"That's the way to end up getting repossessed or being forced to sell your house and trade down," he warned. "As long as the mortgage is not being extended so that you're still repaying it when you should be retired it can be a sensible way to ride out of the current storms."
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