Extending the term of a mortgage. Clever and cheap refinancing with MoneyPark.

You can extend the term of your mortgage early up to 24 months before the end of the contract. This makes particular sense if you are expecting interest rates to go up and want to hedge against this. Extending the term of your mortgage early reduces uncertainty and gives you security in your planning.

For mortgages with terms of a contractually agreed length, it is important to bear the notice periods in mind. These are often set at three or six months and it is usually wise to terminate a contract that is about to expire as a precautionary measure. This has the initial effect of strengthening your negotiation position with the lending bank. Terminating the contract doesn’t mean you have to switch to a different lender.

Changing the form of the mortgage is worth it if the interest rate climate changes, if you adjust your personal financial goals or if the conditions of the current contract are unfavourable. Changing might also make sense if your life situation changes (e.g. due to relocating or retiring).

To protect yourself from rising interest rates when financing real estate, you can take out a fixed-rate mortgage, which has an interest rate fixed for the duration of the term. Alternatively, there are also hybrid fixed-rate and SARON mortgages.

By definition, extending the term of a mortgage means staying with the same lender. The existing mortgage contract is extended and the conditions are amended to match the new circumstances. By contrast, remortgaging means switching to a new mortgage lender. This means that the existing mortgage is taken over by a new financing provider after its term expires.

In the case of fixed-rate mortgages, you can only remortgage when the agreed term comes to an end. If you leave a mortgage early, you will have to pay an early repayment charge. However, you can already start preparing to remortgage two years before the term expires. In the case of SARON mortgages, there are contracts with minimum terms that must be complied with. You have to bear in mind that many mortgage lenders position their borrowers within a staggered system of terms of different lengths – e.g. five-year or eight-year fixed-rate mortgages. This makes it far more difficult to remortgage because the possibility of placing an individual tranche with another lender is so slim. If the different tranches do not expire within two years, it is practically impossible to switch lender without paying a penalty. In this case, you remain locked in to the same lender for a very long time and, when one tranche expires, you are likely to be in a poor negotiating position. Accordingly, there are few cases where staggering the tranches of a fixed-rate mortgage makes sense. An exception would be if you wanted to pay off one tranche in full after its term expires while proceeding with the second tranche.

The current interest rates will influence your decision to extend the term of your mortgage significantly. If interest rates are low, it may be advisable to extend the contract in order to benefit from favourable conditions. If interest rates go up, it may make sense to extend or adjust the term early or change the form of your mortgage in order to save on costs.

You can use the MoneyPark Cockpit to determine the current value of your property. It will give you an estimate based on market data, local price comparisons and other relevant factors. This gives a good indication of how much your property is worth.