Is your fixed rate mortgage coming to an end?
If so, then you may be wondering what your choices are, and how long it all takes. The end of your fixed rate deal is a good opportunity to look at your finances and find yourself a better deal.
In this article we explain your options, where to go for advice and discuss what you can do to make sure you don’t pay more than you have to.
How does a fixed rate mortgage work?
When you apply for a mortgage, one of the choices you have to make is the type of interest rate that you want.
There are interest rates that change when the bank base rate changes and there are fixed rates, which don’t change for a set period of time.
A fixed interest rate allows you to pay the same rate of interest for a specified period of time. This makes it easier to budget for the monthly repayments, as they won’t change.
Most fixed rates last for between one and five years.
If the Bank of England increases it’s interest rate, yours won’t go up, you’re protected from rates rises. However, this does also mean that if interest rates fall, your rate won’t change, and you could be paying more than other people.
You will find more useful information in our Fixed Rate Guide
What happens when a fixed rate mortgage ends?
When you take out a mortgage (with a fixed rate) the paperwork will tell you exactly when the fixed rate is due to expire.
Most lenders will start to contact you around six months before this expiry date. You don’t necessarily have to do anything right away, but it’s not a good idea to ignore it.
You will have two basic choices:
Do nothing!
Choosing to do nothing and forgetting, both have the same end result.
Your fixed rate deal will have a ‘reversion rate’ built in. This is the default interest rate that you pay once your fixed rate ends, and you do nothing. So if the lender doesn’t hear from you, that’s what you’ll end up with.
It won’t be a competitive rate and it will be a variable rate. This reversion rate could be linked to the bank of england rate (tracker) or it could just be the lenders Standard Variable Rate (SVR).
Either way, this new rate will not be the best you can get.
On the upside, reversion rates rarely have early repayment fees. This means you can pay off as much as you want, without being penalised. A good reason to accept the reversion rate option.
We don’t recommend literally doing nothing! You should always look at the options open to you before making a decision.
Do something!
That’s more like it!
If the reversion rate is not for you then there’s two more choices:
- Get a new rate from your current lender
- Get a new rate from a different lender
Read on to find out more.
Stay with your current lender
It’s fair to say that renewing with your current lender is the easiest option.
This is called a product transfer or remortgaging with the same lender.
They will write to you, offering some different rates and deals that you could switch to. You choose one and they do the rest.
You could have to pay an upfront fee but there’s hardly any paperwork involved and you won’t need to prove your income.
Learn about: Mortgage Product Transfers
Switch to a new lender
You might be able to transfer your mortgage over to a new lender. The primary reason why most people do this is to secure a better deal.
This is called remortgaging.
It does involve applying for a new mortgage and supplying all of the information and paperwork that goes with this.
There’s also going to be some fees to pay.
But a remortgage does allow you to seek out the best rate from all of the different lenders, and you could use the opportunity to borrow a bit more on your mortgage or buy someone out.
Learn about: Re-mortgages
So which option is the best?
There’s no easy way to answer that question. It just depends.
Each borrower will have their own needs and wants. What’s right for one person may not be suitable for another person.
The best option is to speak with a mortgage broker so they can analyse what your choices are, and then provide an impartial view on what could be right for you.
Anyway, here’s some of the pros and cons to mull over.
Product transfer
Generally has the lowest fees
Very quick to set up
Not much paperwork
No need for income checks
No credit checks
No need for a valuation
It may not be the best deal
You cannot borrow any more money
Cannot change borrowers
Remortgage
You want the best possible deal
You can borrow some more money
You need to buy someone out
Allows you to change mortgage type
Can consolidate debts
Takes longer
Fees are higher
You need to prove your income
Lender will check your credit
Things to consider
Before you make the final decision between a product transfer and a remortgage, here’s some things to consider:
Check the expiry date
Always check the fixed rate expiry date. The exact date.
Firstly, you won’t be able to change your rate before, without incurring exit fees. Secondly, your monthly payments will change after this date, so you need to budget for any changes.
Early repayment charges
ERC’s are charged when you pay off all, or part, of your mortgage within the penalty period. For most fixed rates the ERC’s stop when the fixed rate ends. But there have been some deals where there’s an extended penalty period.
Fees
Unless you choose the SVR option, you are likely going to have to pay some fees. Make sure you know what these are ahead of time. Some fees can be added to the mortgage (but then you get charged interest on it).
Timing
Particularly for a remortgage, make sure you apply in good time. If you apply for the new mortgage late then you will spend some time paying the more expensive reversion rate while the new loan is being set up.
Don’t just look at the interest rate
The rate is important. But the interest rate period and any fees are also important when comparing one deal with another.
Future plans
Think ahead over the next 2-3 years. Will you need to borrow any extra money or move within this timeframe? This may affect your choice of mortgage.
Can you move home with a fixed rate mortgage?
Lenders impose penalties for repaying a fixed rate mortgage early. So what happens if you need to move in the middle of your fixed rate period? Luckily, there are ways to move home while keeping your fixed rate mortgage in place – you just need to know what to do.
How can a mortgage broker help?
A mortgage broker can help with both a mortgage product transfer and a remortgage with a new lender.
For the transfer they can compare the offers to those available from other lenders, to see which could suit you best.
If you choose the product transfer then your broker can help with the forms and liaise with the lender. Occasionally brokers may be able to get access to a better deal.
For a remortgage they can search from over 100 lenders to find you a great deal. This is only available from a whole of market broker.
Your adviser can help you to:
- Switch lender
- Change repayment method
- Extend the term
- Borrow more money
- Borrow less money
- Buy someone out
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
Yes, technically you can remortgage at any stage, even in the middle of a fixed rate term.
But if you do you are likely to have to pay lots of fees.
It is quite normal to apply for a remortgage before the fixed rate ends. A good time is about 3 months before. When the new mortgage is ready, and you have received your mortgage offer, your broker will ensure it only starts once the fixed rate (and associated fees) have ended.
No, not at all. It’s totally up to you.
No, you are free to choose whatever deal you want. Bear in mind that the product transfer option will only have a few deals to choose from.
In terms of upfront fees the ‘do nothing’ option will probably be the cheapest. But the consequence is that you will probably be paying an uncompetitive interest rate.
The product transfer will have the next lowest setup costs, then comes the remortgage.
But when comparing mortgages it’s important to consider both the initial costs and the rate of interest.
A standard remortgage to a new lender will take around 4-8 weeks on average.
But a mortgage product transfer (without moving lender) can be completed in just a few days.
Read the full article here.
When you remortgage you move your loan from one lender to another.
From applying to completion can take around 4-8 weeks. In between there’s all sorts of legal work, checks and processes.
It is possible to make changes to your mortgage term. This will need the agreement of your lender.
When you apply for a remortgage you will put down the mortgage term that you want.
Most lenders will be OK with these changes. Be careful if the new term goes beyond age 65. This can be classed as borrowing into retirement and the lender will be asking some extra questions around affordability.
You can’t generally extend a fixed rate. This is designed to last for a specific amount of time and then stop. Once the fixed rate ends, you will have the opportunity to replace it with a new fixed rate.
Virtually all fixed rate deals have penalties if you pay off chunks of the loan before the rate ends. These are early repayment charges.
A lot of deals allow you to pay of 10% of the mortgage without penalty.
But what if you want to pay off more than 10% ?
One option would be to do this when the current fixed rate ends, but before the new one starts.
