If you've opted for a fixed-rate mortgage, you will know that your interest rates don't fluctuate and that you'll be paying the same level of interest every month.
Fixed-rate mortgages are usually not only fixed in terms of interest levels but also in terms of time. So what happens when your fixed-rate deal ends? How will your mortgage repayment be influenced? These, amongst others, are the questions we’re answering in this guide.
How long is a fixed-rate mortgage?
A fixed-rate mortgage can last anywhere from one to 15 years. The most common options are either two-year or five-year fixed rate deals, with the two-year option usually offering borrowers a better rate.
However, in recent years the rates have increased on the two-year options, meaning that the margin between the most common fixed-rate mortgages is becoming narrower. Similarly, there has been an increase in lenders offering long-term fixed-rate mortgages of up to 10-years.
What are my mortgage options when the fixed-rate ends?
You have two options to choose between once you've reached the end of your fixed-rate term.
The first is that you do nothing, which means your interest rates will switch to your lender's standard variable rate (SVR) - more on that in a second - and the second option is to remortgage your mortgage with a new deal.
Staying on your standard variable rate
Switching to your lender's SVR means that your repayments may vary month to month and, in most cases, will be higher than your fixed-rate deal.
The main reason behind your SVR fluctuations will be due to changes in the Bank of England's rates. However, in principle, your SVR payments are usually increased or (rarely) decreased at your lender's discretion.
In this sense, one would wonder why even choose the SVR option? Well, there are some positives which, for example, are that you won't be penalised for overpayments or charged early termination fees if you manage to pay off the rest of your mortgage earlier than expected.
The other option is to look and apply for a new mortgage deal. If you still have to repay a large portion of your mortgage, remortgaging is often a good and cheaper financial alternative to switching to an SVR.
So that you have all your paperwork in on time and you can seamlessly switch from one mortgage to the next, start looking into remortgaging opportunities four months before your current one ends.
Though remortgaging is often simpler than applying for your first mortgage, take some time to consider your circumstances and what deal would suit you best. This is especially important, if your circumstances have changed, for example, if you've changed jobs, have become self-employed or if you've had a child.
How much does it cost to remortgage?
Remortgaging often comes with additional costs such as:
- Arrangement fees
- Valuation fees
- Booking fees
- Early exit fees (if applicable)
Some companies offer you free remortgaging deals or have offers where you don't have to pay for the legal fees. Keep in mind that agreements, where the legal fees are paid for by the lender, can sometimes mean that lenders may choose the cheapest options.
This can reflect how long the process takes, which is why it's important to start your research early. An additional factor to note is that remortgage deals with lower rates tend to have higher arrangement fees, which are usually non-refundable.
Depending on your circumstances, remortgaging can often be a better financial choice than switching to your lender's SVR. Before your mortgage term comes to an end, look into what options would best suit you and in what ways you may be able to save the most money.
If you’d like expert advice about your mortgage, why not speak to one of our advisors? It’s completely free, and they will advise you on the best mortgage options available.