When Should You Extend Your Mortgage?
Many people that have a mortgage will consider whether they should extend it at some point. Often a home will gain value in the long term and so will be worth a lot more than the original mortgage taken out on it. This means that a mortgage lender may be prepared to lend some extra money against the home, knowing that they will still get more back if they have to sell it if the repayments are not met.
If you need some extra money, then borrowing extra against the house can seem like a great idea. The interest rate on a mortgage tends to be lower than that on many other forms of borrowing and so you may feel that it will offer you the best deal. However, you need to compare it with the cost of other forms of borrowing in real terms, not just compare the interest rates. You will find that if you have a long term left on your mortgage then the actual amount you repay will be a lot because the interest will add up over the years. It is worth calculating how much the cost of the loan will be and then compare it to other forms of lending.
Even if the cost is not that much different or not much of an issue for you, you should still consider whether borrowing against the home is such a good idea. It is worth remembering that if you cannot keep up payments on a mortgage then the lender can repossess the home and sell it and then you will have nowhere to live. This may seem unlikely, but it does happen to people and so you should consider whether this might be a possibility in the future. If interest rates go up then the repayments on any money that you have borrowed will go up and you will have to consider whether this will be something that you will be able to afford. You may be able to afford the repayments at the moment but this could change when the rates change. Consider how easy they will be to afford at the moment and then think about what a difference could be made by an increase in the rates.
You may find that it will be better to get a personal loan or some other form of short term loan which will be paid back more quickly and therefore less likely to be effected by a rise in interest rates. Although rates may still rise during the term of the loan, it is unlikely to rise so much over the term as a whole as rates do not normally rise very quickly in the short term. It may be better to pay a little more for a shorter term loan for this reason alone, depending on whether you feel that rates are likely to rise or fall.
Once you have compared costs and found out how much a loan will actually cost you compared to the cost of borrowing extra against the mortgage you will then be a position to decide what to do. Consider the risk of losing the home if you do put it against the mortgage and what may happen if the interest rates significantly increase as well. It is a good idea to take time to think this over and also to discuss it with others as it is a big decision to make.
It is also worth considering whether the extra money that you are borrowing is really worth the cost of the loan. You need to decide whether the loan is worth it in the first place. You will have seen how much it will be and you need to consider whether you would still have bought those items if they cost how much they are priced plus the cost of the loan.
If you do decide that you want to borrow money and you feel that extending the mortgage is the right idea for you, then you need to think about whether your timing is right. It is wise to think about the value of your home and how that is likely to change in the future. You lender will consider this when they decide whether to lend you the extra money but it is worth taking a look at it as well. Consider how it makes you feel and what might happen if you decide that you want to move house, need a bigger home or whatever. If this is the case then having a higher mortgage could have an adverse effect as it may mean that when you have to move it could be harder and if you want a more expensive home, you may not be able to borrow more money for this as you may not be able to show that you can pay back a significantly bigger amount.