For the first few years of your mortgage you are likely to be enjoying a low fixed rate, keeping your repayments low and manageable, but what happens when this offer term ends? Ignoring it and simply jumping onto your lenders standard variable rate (SVR) could cost you hundreds more pounds a month so when should you start planning and what should you do?
What is a fixed rate period?
Most mortgage lenders offer a low fixed-rate interest term at the start of the mortgage. This might be two years, three years or even ten, but at some point it does come to an end and the interest rate on your mortgage is likely to increase considerably as you are switched over to the lender’s standard variable rate.
A 25 year £250,000 mortgage at a fixed rate of 1.9% would have meant a monthly payment of £1,054.60 but at the end of the term, simply moving to an example SVR of 4.5% could see that monthly payment become £1,404.98; more than £350 per month more expensive!
What are the options when the fixed rate term comes to an end?
It’s important that you start planning for your mortgage to change months in advance, whether you plan to simply let it roll onto a standard variable rate, or if you want to look at a refinancing option. Your current lender should contact you before the fixed rate period ends, but it’s easy to miss the letter so setting your own reminder is key! Four months before the end is a good time to start reassessing.
Finding out your options with your current lender – the first step
Having all the information you can will help a lot. Contact your current lender and ask them what deals and options they are prepared to offer. Also make sure you know what their current SVR rate and ask them how much your future mortgage payments could become if you do nothing.
Eyes open, you can now look at the options:
- Accepting the lender’s SVR
- Refinancing through a remortgage from the same lender
- Remortgaging with a new lender
- Selling your property and moving to a new home
Accepting the SVR
If it is early on in the mortgage, and the balance is high, it’s unlikely that simply doing nothing and accepting the standard variable rate your lender is about to impose is the right thing to do, but it could be.
Remortgaging will come with additional costs that might be considerable enough that the added monthly payments make more (or as much) financial sense than going through the remortgage process.
At The Mortgage Hut we can work on getting you a superior remortgaging deal, so it’s unlikely that remaining on the SVR is the right thing to do when we are sure to find competitive offers from elsewhere; however, for some the effort involved simply isn’t worth it and accepting the new rate and paying more is just easier – and that’s fine too!
Remortgaging with the same lender
If you refinance with your current lender, the process and fees are likely to be substantially less, so it’s always worth seeing what they can offer.
If you are confused about the deal on the table, why not give us at The Mortgage Hut a call – we can help you understand what you are being offered and look to see if we can find something more suitable elsewhere.
Remortgaging with a new lender
Coming to The Mortgage Hut means we will use our extensive network to find you deals chosen from a huge breadth of different lenders. Competition for your business will be high and the chances are good that we’ll find that superior option.
If you do choose to remortgage then remember it will involve a new round of credit checks and application assessment. A new lender will want to make sure you are able to afford the new mortgage with their terms and the process is similar to your initial mortgage application.
Growth in the marketplace, however, will mean that the LTV ratio of any remortgage is likely lower than during your first application and you are likely to be able to command a much better rate as a consequence.
Give us a call to talk about your remortgaging options!
Selling and moving on
It may seem extreme to sell your home just because your fixed rate ends, but if the value of your property has gone up considerably and you are interested in the change, it could be the perfect answer.
Talk to us to find out potential new mortgages you could obtain on a new property and you may find yourself able to upsize considerably!
More advice from The Mortgage Hut
If you want to know more about remortgaging and whether its right for you, why not read our other articles on the subject. At The Mortgage Hut we have a wealth of advice to help and an expert advisor is always ready to take your call and answer any questions you still have. Why not fill out our simple contact form or pick up the phone today?
