Navigating the End of Your Fixed Rate Mortgage: What Are Your Options?
As the end of your fixed rate mortgage term approaches, you might be wondering about your next steps. Transitioning from a fixed rate period can seem daunting, but it’s also an excellent opportunity to reassess your financial strategy and potentially save money.
Here’s a guide to help you understand some of the options available.
Switch/Revert to a Variable Rate Mortgage
When your fixed rate mortgage term ends, your loan typically reverts to your lender’s Standard Variable Rate (SVR). However, there are a couple of options to consider:
- Standard Variable Rate (SVR): This is the default rate your mortgage will switch to if you take no action. It offers flexibility as you can usually overpay or leave your mortgage without hefty penalties, but the unpredictability of future rate rises (or falls) can be a downside.
- Discount Variable Rate: This rate is usually a discount off the lender’s SVR for a specified period. It can offer lower payments initially, but like the SVR, it can fluctuate, so it carries some risk. Often you are tied in during the Discounted Period incurring an Early Repayment Charge (ERC) if you decide to repay your balance early.
Product Transfer with Your Existing Lender
A product transfer involves switching to a new mortgage rate with your current lender usually without going through the full remortgaging process. (On the basis there is no additional borrowing). This can be a quick and straightforward option if you are happy with your current lender. Here are some benefits:
- Simplicity and Speed: Product transfers are often quicker than remortgaging because you don’t have to undergo a full application process or property valuation.
- No Legal Fees: Since you’re staying with the same lender, there are usually no legal fees involved.
Remortgage
Remortgaging involves switching your existing mortgage to a completely new deal, either with your current lender or a different one. This can be a smart move if you’re looking to secure a better rate or adjust your mortgage terms. Here are the primary examples:
- Switch to Another Fixed Rate: If you value predictability and stability in your monthly payments, you might consider remortgaging to another fixed rate. By locking in a new interest rate, you can protect yourself against potential future rate hikes and budget more effectively.
- Tracker Mortgage: This type of mortgage follows the Bank of England base rate plus a set percentage. If you anticipate that interest rates will remain stable or decrease, a tracker mortgage can be advantageous. However, be aware you are open to rate fluctuations and that your payments will increase if the base rate rises.
Factors to Consider
When deciding on your next move, keep these factors in mind:
- Interest Rates: Compare current rates and forecasts to decide whether a fixed or variable type of rate might be more beneficial.
- Fees: Consider any fees associated with remortgaging, such as arrangement fees, valuation fees, or early repayment charges on your existing mortgage.
- Flexibility: Think about whether you need flexibility in your mortgage, such as the ability to make overpayments or to exit the deal early without penalties.
- Financial Goals: Align your mortgage choice with your broader financial objectives, whether it’s paying off your mortgage faster, reducing monthly payments, or ensuring payment stability.
Next Steps
Ending your fixed rate mortgage term is a pivotal moment that opens the door to various possibilities. By evaluating your options and taking proactive steps, you can find a mortgage solution that best fits your financial needs and goals.
Always remember to speak to a professional mortgage broker, such as Impact Specialist Finance, who can provide tailored advice and help you understand your options thoroughly. Their expertise can make a significant difference in finding the right mortgage deal for you.