If you have a fixed-rate mortgage, you’re not alone. In recent years, almost 86% of all mortgages have been arranged on a fixed-rate basis. We’ve been blessed with historically low interest rates for almost a decade now.
However, it’s important to know your options when your fixed-rate mortgage term ends, especially in times when rates are more expensive than they have been in recent years.
What is a fixed-rate mortgage?
A fixed-rate mortgage is a type of home loan where the interest rate remains constant throughout the entire term of the loan. This means that your monthly mortgage payments will also remain the same over the agreed-upon period.
The most common terms for fixed-rate mortgages are 2, 3, and 5 years, but they are also available for other durations, including sometimes up to 10 years. During the fixed-rate period, the interest rate does not change, regardless of any fluctuations in the broader financial market or changes in the base interest rate set by the central bank.
This offers stability and predictability to homeowners, as they can budget and plan their finances without worrying about changes in their mortgage payments due to interest rate variations.
What happens when your fixed rate ends?
At the end of a fixed-rate mortgage, if you don’t take any action, your mortgage will typically revert to the lender’s standard variable rate (SVR). The SVR is usually higher than the fixed rate you had been paying. It’s important to note that the SVR can vary between lenders.
However, you have options available to you. You can choose to negotiate a new deal with your existing lender, which could include another fixed-rate term or a different type of mortgage product. Alternatively, you have the freedom to explore offers from other lenders and potentially switch your mortgage to a new lender offering a more competitive rate or terms.
What are your options at the end of a fixed-rate mortgage?
At the end of a fixed-rate mortgage, you have several options to consider:
- Revert to the Standard Variable Rate (SVR): If you don’t take any action, your mortgage will automatically switch to the lender’s SVR. However, the SVR is typically higher than the rate you had during the fixed-rate period.
- Choose a New Deal with Your Existing Lender: You can negotiate with your current lender for a new mortgage deal. This could involve selecting another fixed-rate term, a variable-rate mortgage, or exploring other products they offer.
- Choose a New Deal with a New Lender: You have the option to shop around and switch your mortgage to a new lender offering more favourable rates or terms. This process is known as remortgaging or refinancing.
- Sell the Property: If you no longer wish to keep the property or if it suits your financial goals, you can choose to sell the property and use the proceeds to pay off the mortgage.
What is the process when your fixed-rate mortgage is coming to an end?
The process at the end of a fixed-rate mortgage typically involves the following steps:
- Start Early: It is advisable to start planning and researching your options well in advance of the end of your fixed-rate term. You can begin this process up to six months before your current rate expires.
- Speak to a Mortgage Broker: Consider consulting with a mortgage broker like Strive who can provide expert advice and access to a wide range of lenders and mortgage products. They can help you assess your options and find the most suitable mortgage for your needs.
- Contact Your Existing Lender: Reach out to your current lender and inquire about their offerings for customers whose fixed-rate term is ending. They may have new products or deals available that could be advantageous to you.
- Evaluate All Options: Compare the options presented by your existing lender with those provided by other lenders through your broker. Consider factors such as interest rates, terms, fees, and any additional benefits or features that may be important to you.
- Make a Decision: Based on your research, discussions with your lender, and advice from your broker, make an informed decision about the next steps for your mortgage. This could involve choosing a new mortgage product with your existing lender or opting for a mortgage from a different lender.
- Complete the Application: Once you have made a decision, you will need to complete the application process for the chosen mortgage. This typically involves providing necessary documentation, undergoing credit checks, and meeting the lender’s criteria.
Should I remortgage with my existing lender or move to a new lender?
The decision to stay with your current lender or remortgage with a new lender depends on various factors and individual circumstances. Some key considerations include:
Staying with the same lender
- No Affordability Check or Credit Check: Since you are staying with your current lender, they may not require a new affordability check or credit check. This can save you time and effort in providing documentation and undergoing a new application process.
- Potential Discounts for Existing Customers: Some lenders offer loyalty discounts or preferential rates for existing customers. This could result in cost savings compared to switching to a new lender.
- Streamlined and Quicker Process: Staying with your sale lender often involves a more streamlined process since they already have your information and history. This can lead to a quicker turnaround time for renewing your mortgage.
- Limited Range of Mortgage Products: Your existing lender may have a limited range of mortgage products available. This can limit your ability to explore other options that may better suit your needs or provide more favourable terms.
- Missed Opportunity for Better Rates: By not shopping around and exploring offers from other lenders, you may miss out on better interest rates or promotional deals available in the market.
- Lack of Flexibility: Your current lender’s policies or terms may not align with your changing financial needs or goals. Switching to a new lender could offer more flexibility in terms of customising your mortgage to suit your specific requirements.
Switching to a New Lender
- Potential for Better Rates and Terms: By switching to a new lender, you have the opportunity to explore and compare a wider range of mortgage products. This can potentially result in securing better interest rates and more favourable terms.
- Access to New Promotions or Incentives: New lenders often offer promotions or incentives to attract new customers, such as cashback offers, fee waivers, or discounted rates.
- Enhanced Customisation: Switching to a new lender allows you to align your mortgage with your changing financial goals and needs. You can choose a product that offers the features and flexibility you desire.
- Additional Costs: Switching lenders may involve additional costs, including legal fees, valuation fees, and potential early repayment charges from your existing lender. These costs should be factored into your decision-making process.
- Documentation and Process: Switching lenders requires going through the application process again, providing documentation, and meeting the criteria of the new lender. This can be time-consuming and may require additional effort on your part.
- Uncertainty with New Lender: Switching to a new lender means moving away from the familiarity and relationship you have built with your existing lender. There might be a period of adjustment and uncertainty as you establish a new relationship with the new lender.
What products are available when your fixed rate ends?
When your fixed-rate mortgage ends, you have several options available for selecting a new mortgage product. The specific products that are available can vary depending on the lender and the current market conditions.
However, some common options include:
- Fixed-Rate Mortgages: Fixed-rate mortgages allow you to lock in an interest rate for a specified period, typically 2, 3, 5, 7, or 10 years. These mortgages provide stability and predictable payments during the fixed-rate term.
- Tracker Mortgages: Tracker mortgages are tied to a specified benchmark rate, such as the Bank of England base rate or the LIBOR (London Interbank Offered Rate). The interest rate on a tracker mortgage moves in line with the benchmark rate, plus a set margin.
- Variable Rate Mortgages: Variable rate mortgages have interest rates that can fluctuate over time. These rates are typically influenced by the lender’s standard variable rate (SVR), which can change based on market conditions and the lender’s discretion.
- Discounted Rate Mortgages: Discounted rate mortgages offer a discounted interest rate off the lender’s SVR for a specific period. After the discounted period ends, the rate typically reverts to the lender’s SVR.
- Offset Mortgages: Offset mortgages link your savings or current account balances to your mortgage balance. The interest you pay is calculated on the difference between your mortgage balance and the combined balance in your linked accounts. This can help reduce the amount of interest you pay over time.
What are the costs of remortgaging?
When considering the costs of remortgaging, it can vary depending on whether you stay with the same lender or switch to a new lender. Here are some potential costs associated with remortgaging:
Same Lender (Product Transfer):
- Product Transfer Fee: Some lenders may charge a fee for switching to a new mortgage product with them. This fee can vary but is generally lower compared to fees associated with switching lenders.
New Lender (Remortgaging):
- Valuation Fee: If you switch to a new lender, they may require a valuation of the property to determine its current market value. Valuation fees can vary depending on the property size and location.
- Conveyancing Fees: These fees cover the legal work involved in transferring the mortgage from one lender to another. They can include solicitor or conveyancer charges, land registry fees, and search fees. Some lenders may offer to cover some or all of these fees as an incentive to attract new customers.
- Arrangement Fees: Some mortgage products, especially those with lower interest rates or additional features, may come with arrangement fees. These fees are usually paid upfront and can vary in amount.
- Early Repayment Charges (ERCs): If you remortgage before the end of your current mortgage term, you may be subject to ERCs from your existing lender. These charges are meant to compensate the lender for the interest they would have earned if you had stayed with them for the full term.