Mortgage Term Change?

[relicalpha]

Hi,

Not something I need to do (now) but was wondering - if I sign up to an N year fixed mortgage over a 20 year period, is it possible to extend to a 25 year period within that first fixed N year block? i.e. reduce monthly payments, but lender gets more interest. Is that a definite no as it's locked in, lender dependant, or likely no problem?

Thanks

 

[Peerzy]

Hi,

Not something I need to do (now) but was wondering - if I sign up to an N year fixed mortgage over a 20 year period, is it possible to extend to a 25 year period within that first fixed N year block? i.e. reduce monthly payments, but lender gets more interest. Is that a definite no, lender dependant, or likely no problem?

Thanks

On a fixed deal it would be difficult, you've effectively agreed to pay £xxxx per month for N years (normally 2,3,5 or 10) and are now saying you wish to pay less. I suspect they'd potentially entertain something if you could prove serious financial issues like a debt management plan. Without that you're only option would probably be to move to a different mortgage product, internally this may not be allowed or difficult to do (I guess this bit is lender dependant) and moving to a new provider would almost certainly trigger an ERC which could be thousands (or tens of thousands).

If you are reaching the end of your initial fixed period (2,3,5 or 10 years) then it would be very simple, especially when moving to another provider. You wouldn't pay an ERC and would just apply for a 25yr mortgage with someone else but this would require a new affordability check.

There is an argument for keeping the mortgage length as long as (sensibly) possible and overpaying to make up for it. Ie after your first 5 year fix you have 'done' 5 years of your 25 year agreement so would naturally have 20 years left. You move to another provider and borrow the remaining amount over 25 years again rather than 20. This means the monthly payment will be a lot less (say £300 less), you then continue to overpay this £300 each month and the 25 year mortgage would finish in 20 years as originally planned but if you had a bad month or some financial issues you could not pay the extra £300.

Some lenders (Nationwide for example) keep all your overpayments in a 'buffer' and allow you to borrow these back without any additional checks or issues. So doing the above for 2 years would give you an overpayment buffer of £7200 which you could borrow back with a simple request - making something like an extension or home improvement much easier.

 

[relicalpha]

On a fixed deal it would be difficult, you've effectively agreed to pay £xxxx per month for N years (normally 2,3,5 or 10) and are now saying you wish to pay less. I suspect they'd potentially entertain something if you could prove serious financial issues like a debt management plan. Without that you're only option would probably be to move to a different mortgage product, internally this may not be allowed or difficult to do (I guess this bit is lender dependant) and moving to a new provider would almost certainly trigger an ERC which could be thousands (or tens of thousands).

If you are reaching the end of your initial fixed period (2,3,5 or 10 years) then it would be very simple, especially when moving to another provider. You wouldn't pay an ERC and would just apply for a 25yr mortgage with someone else but this would require a new affordability check.

There is an argument for keeping the mortgage length as long as (sensibly) possible and overpaying to make up for it. Ie after your first 5 year fix you have 'done' 5 years of your 25 year agreement so would naturally have 20 years left. You move to another provider and borrow the remaining amount over 25 years again rather than 20. This means the monthly payment will be a lot less (say £300 less), you then continue to overpay this £300 each month and the 25 year mortgage would finish in 20 years as originally planned but if you had a bad month or some financial issues you could not pay the extra £300.

Some lenders (Nationwide for example) keep all your overpayments in a 'buffer' and allow you to borrow these back without any additional checks or issues. So doing the above for 2 years would give you an overpayment buffer of £7200 which you could borrow back with a simple request - making something like an extension or home improvement much easier.

thanks a lot that’s really helpful

 

[Mercenary Keyboard Warrior]

On a fixed deal it would be difficult, you've effectively agreed to pay £xxxx per month for N years (normally 2,3,5 or 10) and are now saying you wish to pay less. I suspect they'd potentially entertain something if you could prove serious financial issues like a debt management plan. Without that you're only option would probably be to move to a different mortgage product, internally this may not be allowed or difficult to do (I guess this bit is lender dependant) and moving to a new provider would almost certainly trigger an ERC which could be thousands (or tens of thousands).

If you are reaching the end of your initial fixed period (2,3,5 or 10 years) then it would be very simple, especially when moving to another provider. You wouldn't pay an ERC and would just apply for a 25yr mortgage with someone else but this would require a new affordability check.

There is an argument for keeping the mortgage length as long as (sensibly) possible and overpaying to make up for it. Ie after your first 5 year fix you have 'done' 5 years of your 25 year agreement so would naturally have 20 years left. You move to another provider and borrow the remaining amount over 25 years again rather than 20. This means the monthly payment will be a lot less (say £300 less), you then continue to overpay this £300 each month and the 25 year mortgage would finish in 20 years as originally planned but if you had a bad month or some financial issues you could not pay the extra £300.

Some lenders (Nationwide for example) keep all your overpayments in a 'buffer' and allow you to borrow these back without any additional checks or issues. So doing the above for 2 years would give you an overpayment buffer of £7200 which you could borrow back with a simple request - making something like an extension or home improvement much easier.

Just want to pick up on the borrow back bit, this isnt nationwides current policy (and most lenders now) so would depend when you took out the mortgage. My mortgage I took in 2015 with Nationwide kept the reserve from overpayments (assuming you dont ask to reduce term by default) and its NOT allowed to be withdrawn.
What you can do is ask them to use it to give you a mortgage holiday so they take the payments from there in effect so your balance goes up by interest only for a while. Even thats not guaranteed you need to request it but it seems they are sensible in their acceptance such as losing your job or having a baby etc

The default position with nationwide is to lower your repayments to take account of overpayments so you need to log on or call them and ask them to move it to reduced term but keep agreed end date the same.
When I first overpaid I said to reduce term, but they also reduced the end date, so you need to ask for the end date to remain fixed.

 

[Jez]

There is an argument for keeping the mortgage length as long as (sensibly) possible and overpaying to make up for it. Ie after your first 5 year fix you have 'done' 5 years of your 25 year agreement so would naturally have 20 years left. You move to another provider and borrow the remaining amount over 25 years again rather than 20. This means the monthly payment will be a lot less (say £300 less), you then continue to overpay this £300 each month and the 25 year mortgage would finish in 20 years as originally planned but if you had a bad month or some financial issues you could not pay the extra £300.

This same ethos is why i have said for years that IO (interest only) is actually by far the most flexible and sensible way to borrow for a house. You maintain absolute flexibility as to the capital repayment element, and therefore the term is yours to create. You may take a month off at will if you wish, or you may choose to treat it as a 10 year repayment plan.

If only people could be sensible, this would be the norm

 

[Peerzy]

Just want to pick up on the borrow back bit, this isnt nationwides current policy (and most lenders now) so would depend when you took out the mortgage. My mortgage I took in 2015 with Nationwide kept the reserve from overpayments (assuming you dont ask to reduce term by default) and its NOT allowed to be withdrawn.
What you can do is ask them to use it to give you a mortgage holiday so they take the payments from there in effect so your balance goes up by interest only for a while. Even thats not guaranteed you need to request it but it seems they are sensible in their acceptance such as losing your job or having a baby etc

The default position with nationwide is to lower your repayments to take account of overpayments so you need to log on or call them and ask them to move it to reduced term but keep agreed end date the same.
When I first overpaid I said to reduce term, but they also reduced the end date, so you need to ask for the end date to remain fixed.

Ah interesting, my NW mortgage started in 2014 and did allow us to borrow back so it must have been something they've changed between the two dates. With all my overpayments (over £500) I set it to reduce the monthly fee (keeping the term the same) and then overpaid by the difference each month (plus more). That gave us the most flexibility.

This same ethos is why i have said for years that IO (interest only) is actually by far the most flexible and sensible way to borrow for a house. You maintain absolute flexibility as to the capital repayment element, and therefore the term is yours to create. You may take a month off at will if you wish, or you may choose to treat it as a 10 year repayment plan.

If only people could be sensible, this would be the norm

Indeed - shame as what would actually happen is 99% of people would spend all the extra money they have on living life to the max and them moan in 25yrs time when they have their home reprocessed.

 

[Mercenary Keyboard Warrior]

This same ethos is why i have said for years that IO (interest only) is actually by far the most flexible and sensible way to borrow for a house. You maintain absolute flexibility as to the capital repayment element, and therefore the term is yours to create. You may take a month off at will if you wish, or you may choose to treat it as a 10 year repayment plan.

If only people could be sensible, this would be the norm

Problem is both this exact method and the closest and very popular one from late 80s early 90s of the investment back ones (endowments) have proven without doubt the majority of the population cannot be trusted to pay close enough attention, so a traditional repayment where the lender is basically guaranteed to be paid back on time or to be well aware when they arent is in many ways far better for the majority of the population.

The one account mortgages were a good close fit since you in effect maintained a decent amount of flexibility whilst the lender could equally see that over time your net position was improving.

 

[Mercenary Keyboard Warrior]

Ah interesting, my NW mortgage started in 2014 and did allow us to borrow back so it must have been something they've changed between the two dates. With all my overpayments (over £500) I set it to reduce the monthly fee (keeping the term the same) and then overpaid by the difference each month (plus more). That gave us the most flexibility.

Yeah it does, the only time its an issue, as it is for me is if your paying the max or close to max overpayments you can since as your monthly drops your overpayment is going up if you keep the total payments the same.
A fairly rare situation I expect, I doubt many people are over paying the max 10% (of original) per year as I am.
I just happen to have high disposable income, my overpayments are around 25% of my net take home

I took a 20 year mortgage, fixed for 10, late 2015 which I will repay in full with a lump sum of almost 10% end of 2022.

 

[Psycho Sonny]

so you need to log on or call them and ask them to move it to reduced term but keep agreed end date the same.
When I first overpaid I said to reduce term, but they also reduced the end date, so you need to ask for the end date to remain fixed.

What?

How can the end date remain fixed and the term be reduced?

If you are reducing the term by days, weeks, months, years. The end date cannot remain fixed.

It's one or the other.

You either have a fixed end date and your monthly payments go down. Or your monthly payments remain the same with each overpayment and the end date decreases as per the overpayment amount.

 

[Psycho Sonny]

Hi,

Not something I need to do (now) but was wondering - if I sign up to an N year fixed mortgage over a 20 year period, is it possible to extend to a 25 year period within that first fixed N year block? i.e. reduce monthly payments, but lender gets more interest. Is that a definite no as it's locked in, lender dependant, or likely no problem?

Thanks

Once you agree a deal you cannot change anything.

Not unless someone dies, etc. Exceptional circumstances. People have said having a kid but that's not good enough. Has to be extreme circumstances and losing job may not be good enough either to get out of a deal. They will expect you to pay after an agreed time or take the house and sell it.

You have agreed to fix for N years at a specific term and that's the deal. You cannot change it until that deal ends.

Otherwise let's say I got a really good deal I could say just lock it in for longer. Or if I got a really bad deal reduce the deal period so I can get out of it quicker. You can't do this.

If you think that you're going to have money issues just go for the longest term they offer and overpay the difference. Once money issues hit you then can either stop the overpayment or stop both the payment by going on a payment holiday thnks to overpayments and the overpayments as well.

 

[Mercenary Keyboard Warrior]

What?

How can the end date remain fixed and the term be reduced?

If you are reducing the term by days, weeks, months, years. The end date cannot remain fixed.

It's one or the other.

You either have a fixed end date and your monthly payments go down. Or your monthly payments remain the same with each overpayment and the end date decreases as per the overpayment amount.

No, you have 3 choices. although you have to carefully read the boxes to tick on nationwides site
1) reduce monthlies so term remains the same
2) reduce term and agreed end date keeping payments the same
3) reduce term and keep original end date. keeping payments the same (they will in theory end up with the mortgage being paid off before the agreed end date if you carry on as is)

The key point is if you keep the end date the same thats your committed clear date. For example you could take a mortgage holiday using overpayment reserve if your situation changed.
You can also change your mind, I could ring them and say I have changed my mind can they recalculate my monthly payments taking my overpayment into account and keep my end date the same, this is something they will do. Or simply switch the setting to say on overpayment I want my monthlies adjusted to get to the end of my term.

As I said their default is to keep your end date the same so to reduce your monthlies. If you ask them they will however keep your monthlies the same and reduce your term to match, but they offer a third option which is effectively the same as 2 but more flexible, keep your payments the same but keep your agreed end date.

I took mine out in 2015 for 20 years, my end date was Oct 2035. The first few overpayments I made reduced my term as I selected keep your monthly payments the same so my end date moved to May 2032. They sent me letters to this effect, I went oh thats not what I wanted. I went online and realised i could select keep your term the same and keep your payments the same. Since then my end date remains at May 2032 thats now when I have in effect agreed to have paid the mortgage off by, yet even without overpayments I would clear the mortgage in the mid/late 2020s.

This may be a specific nationwide thing but its certainly a thing, I can see zero negative in keeping the end date the same (its contractual in effect) and to be in a position where the mortgage would be cleared before that date, but have the ability to renegotiate my payments should I need to lower my monthlies to the amount needed to pay off at the original term date, seems like a win win to me.

 

[Jonnybmac]

Just want to pick up on the borrow back bit, this isnt nationwides current policy (and most lenders now) so would depend when you took out the mortgage. My mortgage I took in 2015 with Nationwide kept the reserve from overpayments (assuming you dont ask to reduce term by default) and its NOT allowed to be withdrawn.
What you can do is ask them to use it to give you a mortgage holiday so they take the payments from there in effect so your balance goes up by interest only for a while. Even thats not guaranteed you need to request it but it seems they are sensible in their acceptance such as losing your job or having a baby etc

The default position with nationwide is to lower your repayments to take account of overpayments so you need to log on or call them and ask them to move it to reduced term but keep agreed end date the same.
When I first overpaid I said to reduce term, but they also reduced the end date, so you need to ask for the end date to remain fixed.

Accord (broker name, actually Yorkshire building society) allow you to still do this

Overpayments
You are able to make overpayments to the sum of 10% of the loan amount on any part of this mortgage in each 12 month period. Overpayments which exceed this will incur an early repayment charge of the percentage specified in the section above on the amount of the excess.
If you make an overpayment or lump sum payment then the amount you owe, and so the amount of interest you pay, is reduced immediately. This provides you with benefit immediately.
Underpayments
With prior agreement, reduced monthly payments may be allowed providing you have previously built up enough credit through overpayments. Please ask for details.
Payment holidays
With prior agreement, payment holidays may be allowed providing you have previously built up enough credit through overpayments. Please ask for details
Incentives
You will receive a cashback of £750.00 following completion One free valuation
Additional secured borrowing
You may be able to apply for additional borrowing following completion of your mortgage, subject to certain conditions being met. This additional borrowing must be repaid in full if your total borrowing is repaid in full. Further information is available on request

 

[Psycho Sonny]

No, you have 3 choices. although you have to carefully read the boxes to tick on nationwides site
1) reduce monthlies so term remains the same
2) reduce term and agreed end date keeping payments the same
3) reduce term and keep original end date. keeping payments the same (they will in theory end up with the mortgage being paid off before the agreed end date if you carry on as is)

The key point is if you keep the end date the same thats your committed clear date. For example you could take a mortgage holiday using overpayment reserve if your situation changed.
You can also change your mind, I could ring them and say I have changed my mind can they recalculate my monthly payments taking my overpayment into account and keep my end date the same, this is something they will do. Or simply switch the setting to say on overpayment I want my monthlies adjusted to get to the end of my term.

As I said their default is to keep your end date the same so to reduce your monthlies. If you ask them they will however keep your monthlies the same and reduce your term to match, but they offer a third option which is effectively the same as 2 but more flexible, keep your payments the same but keep your agreed end date.

I took mine out in 2015 for 20 years, my end date was Oct 2035. The first few overpayments I made reduced my term as I selected keep your monthly payments the same so my end date moved to May 2032. They sent me letters to this effect, I went oh thats not what I wanted. I went online and realised i could select keep your term the same and keep your payments the same. Since then my end date remains at May 2032 thats now when I have in effect agreed to have paid the mortgage off by, yet even without overpayments I would clear the mortgage in the mid/late 2020s.

This may be a specific nationwide thing but its certainly a thing, I can see zero negative in keeping the end date the same (its contractual in effect) and to be in a position where the mortgage would be cleared before that date, but have the ability to renegotiate my payments should I need to lower my monthlies to the amount needed to pay off at the original term date, seems like a win win to me.

I'm with nationwide. Their default was option 2 in my case and I switched to option 1. They never offered me option 3.

 

[Mercenary Keyboard Warrior]

Once you agree a deal you cannot change anything.

Not unless someone dies, etc. Exceptional circumstances. People have said having a kid but that's not good enough. Has to be extreme circumstances and losing job may not be good enough either to get out of a deal. They will expect you to pay after an agreed time or take the house and sell it.

You have agreed to fix for N years at a specific term and that's the deal. You cannot change it until that deal ends.

Otherwise let's say I got a really good deal I could say just lock it in for longer. Or if I got a really bad deal reduce the deal period so I can get out of it quicker. You can't do this.

If you think that you're going to have money issues just go for the longest term they offer and overpay the difference. Once money issues hit you then can either stop the overpayment or stop both the payment by going on a payment holiday thnks to overpayments and the overpayments as well.

Very black and white and not very real world.
Many mortgage companies will allow payment holidays/breaks (which they expect you to make up later, ie the end date of your mortgage remains the same) most will readily agree to 3 or 6 months, possibly more depending on the circumstances.
Its completely up to them, but they are prescribed by law to be reasonable, and have to be fair.

My T&CS and this is normal say that should I face any issues I should contact them to discuss how to agree a plan that will mean I can make payments I can afford in order to avoid default.

The coronavirus legislation in effect made law the same sorts of holiday that many would have granted anyway.

 

[Mercenary Keyboard Warrior]

Accord (broker name, actually Yorkshire building society) allow you to still do this

What you quoted is what I said, and it isnt what the other poster said
Most current lenders allow your overpayment already made to reduce payments or take a holiday

The other poster said he could draw down, ie get the cash back, that he had made as overpayments. This was quite normal 10 years or so ago, but something changed and they stopped that being available for most mortgages

 

[Mercenary Keyboard Warrior]

I'm with nationwide. Their default was option 2 in my case and I switched to option 1. They never offered me option 3.

Wierd since 1 is their default when I log on and also per their website

"
How will overpayments affect my mortgage?


We calculate the interest on your mortgage daily so all overpayments will reduce the interest you pay the following day.

For overpayments of less than £500 per month:

We'll reduce your minimum monthly payments at the next natural recalculation point, such as an interest rate change or product expiry.

For single overpayments of £500 or more per month:

We'll automatically reduce your minimum monthly payments the following month.

You can change or cancel the way your overpayments affect your mortgage. We call this changing your overpayment preference.

You are in control of your overpayment preferences – you can tell us how you want your overpayment money to be used to best suit your individual mortgage needs. For example, reduce monthly payments, reduce term (excluding interest only) or keep both the payments and term the same.


Maybe you just didnt understand the options, you can even see at the bottom the bit I mention (or keep both the payments and term the same.)

 

[Jonnybmac]

What you quoted is what I said, and it isnt what the other poster said
Most current lenders allow your overpayment already made to reduce payments or take a holiday

The other poster said he could draw down, ie get the cash back, that he had made as overpayments. This was quite normal 10 years or so ago, but something changed and they stopped that being available for most mortgages

Ahh okay sorry I was just agreeing with what you said in the final parts as being similar to my contract

 

[Mercenary Keyboard Warrior]

Ahh okay sorry I was just agreeing with what you said in the final parts as being similar to my contract

No worries, it was in effect super powerful what you could do.
In effect save tax free by reducing your mortgage interest then get the money back tax free from your lender.

Maybe lenders found people who were in difficultly would draw it all down then end up defaulting a bit later or something

 

[Peerzy]

Yeah it does, the only time its an issue, as it is for me is if your paying the max or close to max overpayments you can since as your monthly drops your overpayment is going up if you keep the total payments the same.
A fairly rare situation I expect, I doubt many people are over paying the max 10% (of original) per year as I am.
I just happen to have high disposable income, my overpayments are around 25% of my net take home

I took a 20 year mortgage, fixed for 10, late 2015 which I will repay in full with a lump sum of almost 10% end of 2022.

We actually went over the 10% limit at the end of our FTB initial 2 year fix to get the LTV just into the next band. Paying the charge to go over the overpayment limit was better than ending the deal on a LTV in a higher band.

After this I stayed with Nationwide but went with tracker deals as these allow unlimited overpayments which was very handy as we recently cleared everything 19 years early

 

[Mercenary Keyboard Warrior]

We actually went over the 10% limit at the end of our FTB initial 2 year fix to get the LTV just into the next band. Paying the charge to go over the overpayment limit was better than ending the deal on a LTV in a higher band.

yeah always some maths to do. im very cautious with properties and take my risks on investments so play safe, such as 10 year fixed

After this I stayed with Nationwide but went with tracker deals as these allow unlimited overpayments which was very handy as we recently cleared everything 19 years early

19 years, nice. not sure i could have managed that on my 20 year term

i will end up paying it off in under 40% of the agreed timelimit unless i change something in the mean time.