What Happens When Your Fixed-Rate Mortgage Ends?

When Your Fixed-Rate Mortgage Ends…

Once your fixed-rate deal ends, you won’t be automatically free of payments. Instead, your mortgage typically shifts to your lender’s Standard Variable Rate (SVR). 

The SVR is a type of interest rate that can VARY at any time at the discretion of your lender. 

This is often influenced by changes in the broader economic environment, like the Bank of England’s base rate. 

A major drawback with these rates is their uncertainty. Since it can go up and down, it’s tough to plan your finances for the long term. 

On top of this, these rates are often higher than fixed rates, so your monthly payments could jump. 

Right now, the average SVR is a whopping 8.18% according to Moneyfacts. If you’re stuck on a lower fixed rate, say 4%, that could mean a BIG difference in your monthly bill.

For these two reasons, most experts recommend arranging a new fixed or tracker mortgage once your initial deal is up rather than defaulting onto the SVR.

What Should I Do When My Fixed-Rate Mortgage Ends?

At the end of your fixed-rate period, you face a crucial decision: to stay with your current lender’s SVR or to remortgage. 

Doing nothing means you’ll be moved onto the SVR automatically.

This might seem the path of least resistance, but it could lead to more higher payments, especially if the SVR is much higher than your previous fixed rate.

Alternatively, remortgaging offers you a chance to negotiate a new deal, either with your existing lender or a new one. 

This could mean securing a lower interest rate, reducing your monthly payments, or adjusting the terms to better suit your current financial situation.

How Do I Change My Mortgage to a New Deal?

OK, so you’ve decided to ditch the SVR and look for a new mortgage product once that fixed period finishes. 

What are your options for changing your mortgage to a new deal?

You’ve got two main choices:

1. Remortgage with a new lender. This involves taking out a new mortgage with a different bank or building society, using the money to pay off your existing mortgage balance. You get to shop around the whole market for the best available interest rates and mortgage deals.
2. Get a new deal with your current lender (Product Transfer). The other path is to simply negotiate a new mortgage product with your existing lender. This avoids the hassle of remortgaging, though their new deals may not be as competitive.

Using an independent mortgage broker is highly recommended when looking to switch mortgages. They have access to the entire market and can quickly compare thousands of deals to find the most suitable and affordable one for your needs.

Which One Should I Opt For?

Deciding between remortgaging and a product transfer depends on whether you prioritise saving money or a hassle-free experience.

Remortgaging lets you hunt for a much lower interest rate with a new lender, potentially saving you a significant amount each month. 

This might be ideal if you want the best possible deal or need to borrow more money. However, it involves more paperwork, fees, and can take longer.

On the other hand, a product transfer with your current lender is quicker, easier, and often involves minimal fees. 

It’s a good option if you value convenience, don’t mind your current interest rate, or wouldn’t qualify for the best remortgage deals. The downside is you might not get the absolute best rate on the market.

So, weigh your priorities.

Do you want to save the most money and potentially adjust your loan terms (remortgage), or prioritise a faster, simpler process (product transfer)? 

>> More about How To Remortgage

What Are the Costs of Changing My Mortgage?

Before you change mortgage deals, it’s crucial to understand the costs and fees involved. These can potentially wipe out any potential savings, so you need to crunch the numbers carefully.

Common costs when remortgaging include:

• Early repayment charge (if leaving before your fix period ends)
• Exit fee
• Arrangement fee for the new mortgage
• Booking fee (rarely more than £200)
• Property valuation fee (sometimes free for a remortgage)
• Conveyancing fees (also often free when remortgaging)
• Broker fees if using a mortgage advisor

Your broker can calculate if the savings from a new mortgage outweigh these fees over the fixed period. If not, it may be better to stick it out on the SVR for a while.

When Is the Best Time To Remortgage?

Ideally, you want to start looking at your remortgage options around 6 months before your current fixed rate ends. This allows plenty of time to research the market and apply for a new deal.

Many lenders will let you lock in a new rate around 3 months before your switch date too. Though rates can change, so it’s a bit of a gamble applying too early.

The actual timing may also depend on any early repayment charges attached to your existing fixed rate mortgage.

If these extend beyond the end date, you could face hefty penalties for remortgaging immediately after the fixed period ends.

Should I Always Remortgage After a Fixed Rate?

In some situations, switching mortgages after your fixed rate might not actually be the best decision. 

While the SVR is usually higher, there are exceptions where it can make sense to stick it out–at least for a little while.

For example, if you have a small mortgage balance under £60,000 remaining, the fees for setting up a NEW mortgage could outweigh any potential interest savings.

Many lenders won’t even take on such small mortgages.

If you can clear a decent chunk of your mortgage by making overpayments, it may also be better doing this interest-free on an SVR rather than remortgaging.

Or if your financial situation has changed for the worse – e.g. you’ve taken on more debts, become self-employed, or your income has dropped – you might struggle to qualify for a competitive remortgage rate. Staying put on the SVR could be simpler.

The takeaway is: don’t just automatically remortgage when your fixed rate ends. 

Take some time to assess your financial situation, calculate the costs VS savings, and decide if switching mortgages is worthwhile for you. 

Can I Pay Off My Mortgage At The End Of The Fixed Rate?

Yes, you can, but before doing so, it’s important to check the terms of your mortgage agreement closely. 

Many fixed-rate deals have Early Repayment Charges (ERCs), especially if you pay it off during the fixed period.

These fees can sometimes apply even at the end of the term, depending on the specific conditions set by your lender.

So, double-check your mortgage agreement before celebrating. 🙂

What Are Early Repayment Charges?

Early repayment charges are fees that lenders might impose if you repay your mortgage early. 

The fee is usually a percentage of the loan amount remaining. This varies significantly between mortgages, but usually ranges from 1% to 5% of your mortgage outstanding balance. 

Typically, the ERC decreases the closer you get to the end of the fixed rate period.

The Bottom Line

In the end, the decision to remortgage or stick with your current standard variable rate (SVR) depends on your own situation, your financial goals and what’s happening in the mortgage market right now. 

To make sure you’re making the best choice for the long term, it’s always a good idea to get advice from a qualified mortgage broker.

If you’re in the UK and looking for a whole-of-market broker, just get in touch with us. We can connect you with someone who can help you sort out your mortgage, especially when your fixed deal is coming to an end.