What to do when your fixed rate mortgage term ends
When you purchased your home you likely agreed to a fixed term mortgage deal. This means the amount of interest you pay and the monthly repayments are the same for the duration of the agreement, usually two or five years, but sometimes other durations. But what do you do when this fixed rate mortgage comes to an end? What are your options? Let’s take a look.
1. Do nothing
You can quite simply do nothing if you choose. You’ll then move to what is known as a standard variable rate (SRV) of interest with your current mortgage lender. However, it’s important to note that this rate is not going to be the most favourable on the market. It will likely cost you more than choosing another fixed term deal which has a more enticing interest rate. A better interest rate will save money in the long run and on repayments.
2. Switch to another fixed rate mortgage with your current lender
The variable rate is usually very unfavourable when compared to choosing another fixed rate mortgage term with your current mortgage provider. It’s often very straightforward to choose another fixed term with your existing lender as they won’t need to run all the checks as they did the first time round. It can be as simple as picking the new deal and being switched to it instantly. However, although it may be a cheaper option when compared to doing nothing, it might not be the best option as another lender could have an even better deal.
3. Choose to remortgage with a different lender
Just like you do with insurance and utilities, you can also shop around for a better rate when it comes to your mortgage deal. You don’t have to stay with the same lender and can choose to switch without penalty once your fixed term has ended. In fact, there is usually a crossover period, so check the terms of your fixed rate agreement as you may be able to switch around three months before the fixed term ends without incurring any penalties.
This means you can start shopping around for a better mortgage deal a few months before to ensure you secure the best rate as soon as your deal comes to an end. It will help stop the variable rate kicking in on your current deal which could cost a lot more in interest and monthly payments than you’re used to.
To find a new mortgage you can use online comparison sites to compare mortgage deals. You may also prefer to enlist the help of a mortgage adviser or a mortgage broker who are both experts in their field and can find the best deals on your behalf.
When choosing a new mortgage lender you may require conveyancing solicitors such as GD property solicitors to handle the legal side of things such as confirming IDs, checking land registry documents, double checking the fine print of your new mortgage deal and transferring the mortgage funds between parties. Check if the new lender includes a free legal package in the deal and if not, you may be able to find a better priced solicitor yourself.
You can always choose to remortgage at any point whilst still in a fixed term deal, however you will likely be charged an early repayment fee so you’ll have to calculate whether any interest savings outweigh any fees you’ll incur.
Should you choose a fixed term again?
Not necessarily. It is usually the cheapest option when it comes to interest rates and repayments, but if you are planning to move house soon then you may have to pay a pretty hefty fee to repay a fixed term mortgage. For example, to end our fixed term mortgage deal/pay off our current mortgage we would have to pay almost £5000 as an early repayment fee!
But, if you are planning on staying put then yes, it’s a great idea to choose another fixed term deal to take advantage of better interest rates if lower than the variable rate and to also know where you are financially with repayments over the coming years.
For more similar articles check out my collection of family finance tips and helpful debt blog posts!