What to Do When Your Fixed-Rate Mortgage Deal Ends
As your fixed-rate mortgage deal approaches its end, you might be feeling uncertain about what lies ahead. Mortgage rates have fluctuated over the past few years, and the end of a fixed-rate term can bring significant changes to your financial situation.
Understanding your options and planning ahead is important to ensure that you continue to manage your mortgage effectively rather than leaving it to chance.
What Happens When Your Fixed-Rate Mortgage Ends?
When your fixed-rate mortgage term concludes, your interest rate will typically revert to your lender’s Standard Variable Rate (SVR).
This can lead to higher monthly payments, as SVR rates are often significantly higher than fixed rates that you take when you renew a product.
For instance, if you had a fixed rate of 3% and your lender’s SVR is 7%, your payments would increase substantially.
The Impact of Moving to an SVR Mortgage
Higher Interest Rates: SVR rates are usually higher than fixed rates, leading to increased monthly payments.
Uncertainty: SVR rates can change at any time, making it difficult to predict future mortgage costs.
Budgeting Challenges: The unpredictability of SVR rates can complicate long-term financial planning so best to plan in advance.
Preparing for the End of Your Fixed-Rate Deal
To avoid the shock of higher payments, it’s wise to start preparing several months before your fixed-rate deal ends, for instance 6 months. Here are some steps you can take:
Assess Your Financial Situation
Evaluate your current financial standing and consider how higher payments could affect your budget. Ask yourself:
- Can I afford higher monthly payments?
- Should I consider making overpayments to reduce my mortgage balance?
- Do I have sufficient savings to cover potential increases?
Consider Your Options
You generally have two main options when your fixed-rate deal ends:
Do Nothing: Your mortgage will switch to the SVR, which could lead to higher payments and uncertainty. This is not recommended.
Remortgage: You can look for a new mortgage deal, either with your current lender or a new one. Professional advise is recommended for this.
Find out Your Options
Remortgaging: Is It Right for You?
Remortgaging involves taking out a new mortgage to replace your existing one. This can be beneficial if you find a deal with a lower interest rate or better terms than what your current lender is able to offer you. Here’s what you need to know:
Potential Benefits of Remortgaging
Lower Interest Rates: You may be able to secure a more competitive rate and reduce your monthly payments.
Fixed Terms: Lock in a new fixed-rate deal to avoid the unpredictability of SVR rates.
Better Terms May Be Possible: Potentially negotiate more favourable terms based on your current financial situation.
Costs of Remortgaging
- Early Repayment Charges: Some fixed-rate mortgages have penalties for repaying early so you need to bear these in mind, checking your paperwork to see when these end.
- Arrangement Fees: New mortgage deals may come with arrangement or booking fees which can be multiple thousands of pounds.
- Valuation and Conveyancing Fees: Although often free with remortgages, these costs should be considered as not all lenders will cover them.
Making Overpayments
One effective strategy to prepare for the end of your fixed-rate deal is to make overpayments on your mortgage. This involves paying more than your required monthly payment, which can significantly reduce your overall balance and future interest costs. It may also bring your early redemption penalty down if you were planning on paying that.
Benefits of Overpayments
- Interest Savings: Reducing your mortgage balance means you’ll pay less interest over time.
- Faster Repayment: Pay off your mortgage sooner by decreasing the principal amount.
- Financial Cushion: Build a buffer against future rate increases with a lower balance.
Conclusion
The end of a fixed-rate mortgage deal is a critical time to reassess your financial situation and make strategic decisions.
Whether you choose to remortgage or manage an SVR mortgage, planning ahead and seeking professional advice in advance (for example, six months) can make a significant difference.
Kerr & Watson is dedicated to providing the expert guidance you need to complete the transition smoothly.
Contact us today to explore your options.
