Modifying a loan can seem like a great option. To borrow more money so that you can pay for more things, perhaps a holiday, maintenance on the house or a wedding, might seem like a fantastic use of the money. Perhaps reducing the amount you pay back each month, but paying over a longer term, might be great as you will have some money free each month to be able to treat yourself to more things. However, there are costs to doing this and you need to think about these as well.
The costs could be quite significant and you do not want to have to suffer in the future because you have been frivolous. However, you may find that the money you release from changing your loan has a high impact on your life and is well worth the additional costs.
All loans cost money, but many people do not realise quite how much.
We tend to be worried about very short term loans because we can end up paying back almost twice as much as we borrowed. However, with a mortgage, we normally end up paying back three times what we borrowed because we are paying back for such a long time. It is therefore very important to calculate the cost of what you are doing.
Borrowing more money will mean that you are paying more interest to the bank and therefore cost more. Paying over a longer term will also mean that you are paying more interest and so you need to calculate exactly how much more you will be paying. This is difficult because if interest rates go up, you will be paying even more and if they go down, you will be paying less. However, if you assume that they stay the same, you can make some rough calculations.
It is also worth noting that there may be fees and other costs too. If you want to borrow more money, the lender will need to find out what the value of your property is and this may mean they do a search and charge you for it. There will also be administration work required to change your account and you may get charged a fee for this as well.
It is important to be aware of all of the costs and calculate them before you sign up to anything so that you are aware of how much you are paying for these changes that you are making.