You might be thinking what happens when my fixed-rate mortgage ends? If you are on a fixed-rate mortgage it is important to investigate the mortgage options available to you as your current preferential rate will eventually come to an end.
Typically, fixed-rate mortgages last for two or five years, although some lenders also offer three, seven and sometimes even ten-year terms.
According to UK remortgage statistics from the ONS, more than 600,000 households faced the prospect of interest rate rises when they renewed their fixed-rate mortgages in the first half of this year alone.
We are here to help you with advice about what you should do when your fixed-rate term finishes and what happens if you don’t take any action.
What Happens When Your Fixed-Rate Mortgage Ends?
When this fixed-rate period ends, it doesn’t mean your mortgage disappears but the ‘lower-rate’ you were enjoying does end. If you don’t remortgage, your mortgage will shift to your lender’s ‘standard variable rate’ (SVR). This rate is not fixed, which means that it can fluctuate, usually in line with changes in the Bank of England’s base rate.
Standard Variable Rate (SVR) – What Is This?
The Standard Variable Rate (SVR) is often higher than the fixed rate you were initially paying, which results in your monthly payments often increasing. The SVR, unlike a fixed rate, can go up or down depending on the market condition. One advantage of being on a SVR is that early repayment charges (ERCs) don’t apply, so you can switch mortgages or pay off your mortgage without facing penalties. We rarely advise our clients to stay on a SVR because it can cost you more in the long-term.
Why Remortgaging Is Important
Remortgaging is when you move your existing mortgage to a new deal, typically with a new lender. When you remortgage to a new ‘fixed-rate mortgage’, you can lock in a lower interest rate and avoid any unpredictability of the SVR. This helps individuals plan their monthly budgets as mortgage payments remain consistent, saving them money in the long-term.
All lenders expect homeowners to remortgage once their fixed-rate ends so if you stay proactive and act before your fixed-rate term expires, you can avoid months of paying more than necessary.
Remortgaging – How Does It Work?
The best time to start the remortgaging process is roughly six months before your fixed-rate period ends. This gives us enough time to compare the market and find the most competitive deal. As mortgage advisers, we can take care of this process for you – ensuring you switch to the best available deal without any hassle. We work with you to find a new mortgage deal tailored to your circumstances and help you with the application, so that the transition is smooth and worry-free.
Is Remortgaging Always The Answer?
While remortgaging makes sense for most homeowners, there are some instances where it might not be the best option:
- If you have a small mortgage balance outstanding, the fees associated with remortgaging may outweigh the savings from securing a lower rate.
- If you are moving house soon, it might be worth staying on the SVR temporarily to avoid any early repayment charges from switching to a new deal too soon.
- If you plan to make a significant overpayment on your mortgage soon. Doing so while you are on an SVR can help you avoid early repayment fees, which are more common during fixed-rate periods.
The Advantages of Remortgaging
The main benefit of remortgaging is that you can keep your monthly payments lower by switching to a more competitive interest rate. This can be repeated multiple times throughout the life of your mortgage, allowing you to stay on a low interest rate and reduce the amount of interest you pay overall.
What to think about when considering to remortgage:
- Start the remortgaging process about six months before your fixed rate expires.
- Avoid moving onto the standard variable rate as this can increase your monthly payments.
- Remember, we are here to help! We specialise in helping you find the best mortgage deal for your circumstances and managing the switch for you. Our remortgaging section of our website, provides you with all the details you need.
If you would like to discuss the options available to you, please get in touch and we can help you save money and ensure your mortgage works for you.
*Please note: Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.