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Remortgage to Shorten Your Mortgage Term

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Meet the Author

I am an expert in: Remortgage to Shorten Your Mortgage Term

Part of HL Partnership Limited

Paying off your mortgage sooner is a goal for many homeowners, and shortening your term is one way to make it happen. Our team at Asset Harbour often talks to clients about whether a shorter term is the right choice for their budget and future plans.

Below, we answer some of the most common questions people ask about cutting down their mortgage term. You will find out how your monthly payments and interest could change, what lenders look at during affordability checks, and how this option compares to making regular overpayments. We also cover what to do if payments ever become too much to handle and why getting proper advice can help you find the right path forward.

Can you remortgage to a shorter term to pay off your mortgage sooner?

This is definitely an option you can look at when you are remortgaging. You can do this by switching to a different lender or by renegotiating the terms of your current mortgage with your existing lender.

The main thing here is meeting the lender’s affordability criteria over that shorter term. Because a shorter term means higher monthly payments, the affordability checks are likely to be stricter. As long as you meet the affordability requirements through their calculation, it is something you can definitely look at doing. Your adviser will check all of that over for you and let you know exactly what is possible and how much you can reduce your term.

How much more will your monthly payments be if you reduce your mortgage term?

There is no blanket amount that your payments will be if you reduce your mortgage term. I can say that this is based on how much you reduce the term to, how much your mortgage borrowing is, the interest rate, and any applicable fees.

If you are reducing your term, your monthly payments will rise because you are paying that mortgage over a shorter period of time. Your adviser can liaise with you and let you know exactly what your monthly payments would be over certain terms. This helps you find the right term for you that is also affordable within your monthly budget.

Is it better to shorten your mortgage term or make regular overpayments instead?

There is no right answer here, and we have this conversation with clients quite a lot. The difference between them is that if you shorten your mortgage term, as long as you keep up with your monthly repayments, you have the certainty that your mortgage will be repaid over that shorter term.

If you were to make overpayments, it gives you a bit more flexibility, because your contractual payments will be lower. You can then choose to make overpayments as and when you have the excess disposable income to do that. If you have one month where funds are a little bit tighter, you do not have to make the overpayment.

It is a case of weighing up, based on your circumstances, whether you want the certainty of your mortgage being paid off quicker or the flexibility to chip away at it as and when you have extra money. What is most suitable is going to completely vary based on your own circumstances. This is why it is really important to receive proper advice from an adviser so they can point you in the right direction of the most suitable way to set up the mortgage that works for you.

How much interest could you save by cutting your mortgage term by five or ten years?

There is no fixed amount of interest that you will save by reducing your mortgage term. You will certainly save some interest, but the exact figure depends on your current mortgage, your current term, and the interest rate you are paying.

My advice is always to speak to your adviser. They can talk through it all with you and work out the most suitable term for you that remains affordable within your disposable income.

Do lenders allow you to reduce your term when you remortgage, or are there restrictions?

Lenders definitely allow you to reduce your term when you remortgage. This is completely subject to meeting affordability with that lender for the reduced term.

When you reduce the term, your payments are naturally going to be higher because you are paying that debt back over a shorter period of time. It is simply a case of making sure the arrangement meets their affordability criteria based on that shorter term and the higher monthly payments.

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We can advise how much you can borrow, find the most suitable lender and have that Decision in Principle in place. Then, when you do make an offer on a property, you’re ready to go.

Can you shorten your mortgage term with your current lender without having to remortgage?

If you want to reduce your mortgage term while you are still within your product period, you do not need to switch lenders. You can approach your current lender directly and explain that you are looking to shorten your term. This is something they will be able to look at for you.

They will want to run their criteria and affordability checks. This is just to make sure that the reduced term and increased monthly payment will be affordable for you.

Will choosing a shorter mortgage term affect the interest rate you’re offered?

The short answer is no. When you take a mortgage out, the term of the mortgage will not impact the interest rate you are offered. It will impact your overall monthly payment, but it will not impact the type of interest rate you can get.

What happens if you shorten your term but then can’t afford the higher monthly payments?

This does happen sometimes where people reduce their mortgage term, but the mortgage payments turn out to be a little bit higher than they thought they could afford.

If this is the case, I would simply advise giving your current lender a call. Lenders are very accommodating now, and they will try to work with you to come to a solution. They would be able to look at extending the mortgage term again for you or potentially other options to help make those mortgage payments a bit more affordable. It is just a case of giving your existing lender a call and explaining the situation.

Is there a minimum mortgage term that lenders will allow?

There is no set minimum mortgage term that lenders will allow. Some lenders have specific criteria regarding a minimum term, but this varies from lender to lender.

My advice is to speak to an adviser. They can check the criteria with all relevant lenders and make a recommendation that suits you.

How do lenders check whether you can actually afford the higher payments of a shorter term?

Lenders typically have what we call calculators in the background. These are calculations set up by their risk teams to work out how much they can lend to you based on your income and expenditure. A lot of the time these are bespoke calculations. Sometimes they might look at the exact net income coming into your bank account minus your outgoings to see what is left.

Every lender is slightly different, which is why you can sometimes borrow more with one lender compared to another. There is no exact method or science to it.

Summary

When you are looking to remortgage, shortening your mortgage term is a great way to pay off your home loan sooner and save on interest. However, because higher monthly payments are required, our advisers will carefully check your affordability to make sure the new arrangement fits your budget. You can also choose between fixing a shorter term for absolute certainty or making regular overpayments for more flexibility. Our team is here to help you compare your options and find the right approach for your circumstances.

Key Points

  • You can shorten your mortgage term by switching to a new lender or by renegotiating with your current lender.
  • Shorter terms mean higher monthly payments, so lenders will run stricter affordability checks based on your income and outgoings.
  • Shortening your term guarantees your mortgage is paid off quicker, whereas making regular overpayments gives you more financial flexibility when money is tight.
  • Reducing your term will save you money on interest, though the exact amount depends on your loan size, remaining term, and interest rate.
  • The length of your mortgage term does not change the interest rate you are offered.
  • If you ever struggle with the higher payments, your lender can usually help by extending your term again.
  • Our advisers can look at different lender rules and help you find a mortgage setup that suits your financial situation.

 

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP TO DATE WITH YOUR MORTGAGE REPAYMENTS.

There may be a fee for mortgage advice. The precise amount of the fee will depend upon your circumstances, but will range from £99 to £549, and this will be discussed and agreed with you at the earliest opportunity.

For specialist tax advice, please refer to an accountant or tax specialist.

Asset Harbour Mortgages and Protection Limited, trading as Asset Harbour Mortgages and Protection, is an appointed representative of HL Partnership Limited, which is authorised and regulated by the Financial Conduct Authority.

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