Should you Extend your Home Loan Repayment Period?

In general, extending your home loan repayment period is not a good idea. There are simple enough reasons for this; extending the time period of any loan means paying a larger amount of interest in total. Also, interest rates usually increase over the years and this makes you pay more interest for the extension than you paid before. But of course, there are certain circumstances that are actually favored by extending home loan repayment periods. Extensions may have advantages as well as disadvantages and there are certain risks involved; depending on your situation and the reasons you may have for wanting an extension.

Advantages of extending your home loan repayment period

You should go for extension of your home loan repayment method only for the following reasons.

Firstly, the loan may be putting you under difficult financial strain because you cannot come up with the monthly installments that you have to pay. In this case, it is much better to have your home loan extended. It will reduce the amount of cash you’ll have to cough up each month but it will increase the overall amount of money that you will have to pay. It makes the repayment easier to manage because you can cut a small amount from your salary for it – but it makes you pay more in the end.

The second circumstance that might be favorable for the extension of your repayment period is if you get a chance to refinance your mortgage. Sometimes you can get better deals if you refinance you loan – which usually involves the extension of your repayment period. You can change your adjustable interest rate into a fixed rate, if the offer is available to you. All this depends very much on the market itself and the rates and offers that are out there.

Refinancing only works if the rates of interest are really low – rates keep changing – so you’ll have to keep a sharp eye out for such opportunities.

Disadvantages of extending your home loan repayment period

In the case of extending your home loan repayment period, the disadvantages mostly outweigh the advantages, unless, for example, you are in a serious financial difficulty and can simply not afford to pay the amount of money you need every month to pay off your loan.

Firstly, extending your loan means that you’ll have to pay more interest on the whole. Unless you find brilliantly low interest rates compared to your previous rates – which is hardly likely, rates tend to rise and not fall – you will never be paying less interest after getting an extension. Even if the rates are slightly lower than before, you will be paying interest over a longer time and therefore the amount of interest that you will have to pay on the whole will be much more.

Secondly, loans might involve different fees that you have to pay over time, and sometimes your home loan may contain penalty clauses saying that you’ll have to pay more money if you don’t pay off the entire loan in time. You’ll have to be extremely careful and look over your documents to check for these clauses.

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