By Amy Colton, Conveyancing Manager.
When your fixed rate mortgage comes to an end, you will automatically move onto a standard variable rate (SVR) mortgage. No matter the term of your fixed contract, the interest rate on SVR mortgages is usually a considerable increase and your monthly repayments could rise dramatically. Reviewing your mortgage 3-6 months before the end of the fixed term will put you in the best place possible for when your fixed term mortgage ends.
So, what are your options…
Staying on a standard variable rate
Automatically transferring to a SVR mortgage means that you’ll likely end up on a more expensive interest rate. This works in a similar way to car insurance renewal deals; you can end up being worse off staying as you are. Although doing nothing is certainly easier, it doesn’t necessarily make financial sense.
Disadvantages of a standard variable rate
Unlike a fixed rate mortgage, the interest on a SVR mortgage can change at any time. Not only is it affected by changes to the Bank of England’s base rate but it can also be changed simply down to your lenders discretion. This makes it more volatile and isn’t great for budgeting or knowing what your mortgage payment will be in months or years to come.
Advantages of a standard variable rate
On some occasions, it may be better to stay put on a standard variable rate. More commonly than not, there are no early repayment charges on SVR mortgages and therefore if you’re thinking about making overpayments, or moving house in the near future there will be no financial penalties, which could make it cheaper in the long run. Additionally, when you remortgage you will have fees to pay. If the amount on your mortgage is relatively small, the fees may be more expensive to pay than the additional interest repayment charges.
Staying with your current provider
Switching to a new mortgage deal, either with your existent mortgage provider or with a new one, is called remortgaging.
There are multiple advantages of staying with your current lender when remortgaging, the biggest of these being ease. When you originally applied for the mortgage, you would have provided important documents, such as ID, proof of address and proof of income, therefore they already have these details on file, and they wouldn’t need to be provided again. They also wouldn’t have to value the property to check it is worth the amount being remortgaged.
By staying with the same provider, you will also incur fewer costs, as you are unlikely to need a conveyancer to complete the legal work. You can usually transfer to a different deal very easily, and with some providers this could be as simple as going on their app or website and selecting a new deal. All in all, remortgaging with the same provider will take around 6 weeks to complete, so you still need to consider doing this before your fixed term contract ends.
Remortgaging with a new mortgage provider
Of course, staying with your current provider means you are ignoring many other deals that could be available to you. Shopping around opens up more offers and deals which could be better. When switching lenders, you will need to reapply for a mortgage, which means a bit more work and costs. Your new mortgage lender would have to run a credit check to ensure affordability, as well as completing a property valuation.
Due to these additional checks, remortgaging with a new provider takes more time. If you’re thinking of remortgaging with a new lender, you should start investigating other deals up to 6 months before the end of your fixed term. This allows you to get everything organised in plenty of time.
If you’re asking yourself, should I remortgage, read our helpful guide for more information.
Help with remortgaging
If you used a mortgage advisor or broker when getting your existing mortgage, they may contact you to talk about remortgaging. If not, it could be worth reaching out to them. If you didn’t speak to an advisor before, you should still consider the use of one for remortgages. A financial advisor is the best person to help you talk through your specific details and options, so you can make a decision that works best for you.
You will usually need to instruct a conveyancer to complete the legal work when remortgaging with a new lender. Learn more about the remortgage conveyancing process to understand how it works.
Use our online remortgage calculator to get a quote for your remortgage.
Disclaimer: The article above is only a rough guide to give you an idea of what you can do when your fixed term mortgage ends and it does not constitute financial advice. We would always advise anyone looking at remortgaging to seek the advice of a suitably qualified professional.
