What happens when your fixed rate mortgage ends? a comprehensive guide
When your fixed-rate mortgage ends, it’s crucial to evaluate your options to avoid unnecessary costs. At Changemymortgage.com we specialise in simplifying this process. Our platform instantly provides you with personalised offers from your current lender and competitive alternatives from the market, all with up to £500 cashback for switching through us.
A fixed-rate mortgage provides financial stability by locking in your interest rate for a specific term, typically lasting two to five years. This ensures predictable monthly payments, protecting you from fluctuations in interest rates during this period. However, when the fixed term concludes, your mortgage automatically reverts to your lender’s Standard Variable Rate (SVR) — a rate that’s typically higher and subject to change.
Understanding this transition and planning ahead can save you thousands in the long run.
When your fixed-rate term ends, your mortgage moves to the lender’s Standard Variable Rate (SVR). This rate is tied loosely to the Bank of England base rate but can change at your lender’s discretion. According to MoneySavingExpert, SVR rates can exceed 7%, a significant jump from fixed-rate deals, which currently average closer to 4%–5%.
This increase can dramatically raise your monthly payments. For example:
On a £200,000 mortgage, a shift from a 4% fixed rate to a 7% SVR could mean an increase of over £300 per month.
Due to these cost implications, the majority of homeowners seek a new deal through remortgaging when their fixed rate ends.
Why the Standard Variable Rate Can Be Costly
The SVR is designed to be flexible, with rates that can rise or fall depending on changes in broader economic factors like inflation or the Bank of England base rate. While this flexibility may seem appealing, it comes at a cost:
Unpredictability: Lenders can adjust SVR rates at any time, making it harder to budget effectively.
Higher Costs: As mentioned, SVR rates are typically much higher than fixed rates.
Situations Where Staying on the SVR May Make Sense
While moving to the SVR is generally more expensive, there are rare circumstances where it may be beneficial:
Near Mortgage Completion: If you’re a few months away from fully repaying your mortgage, the SVR’s flexibility can allow you to avoid early repayment charges (ERCs).
Selling Your Property: If you plan to sell your home in the near future, the absence of ERCs under the SVR could save you money.
In these cases, it’s advisable to consult a mortgage advisor for tailored guidance.
What Are Your Options When Your Fixed-Rate Mortgage Ends?
When your fixed-rate term ends, you essentially have two options:
1. Do Nothing
If you take no action, your mortgage will revert to the SVR. While this might seem straightforward, it often results in higher monthly repayments. The uncertainty of the SVR makes it a risky long-term choice for most homeowners.
2. Remortgage
Remortgaging involves switching to a new mortgage deal, either with your current lender or a new one. This process can help you:
Lock in a competitive interest rate.
Secure predictable monthly payments.
Potentially reduce your overall mortgage costs.
Benefits of Remortgaging
Remortgaging to a new lender might be cheaper, but it is important that you expolore all your options. According to the BBC mortgage rates are rising despite lower interest rates so its important that you consult an independent all of market broker to consider all your possibilities.
When remortgaging, you have two primary options:
Product Transfer
Staying with your current lender allows you to switch to a new deal without changing providers. This option is often faster and involves fewer fees.Switching Lenders
Moving to a new lender can sometimes offer better rates or terms, but this process may involve additional costs such as arrangement and valuation fees.
Key Costs to Consider
Although remortgaging can save you money in the long term, it’s essential to factor in associated costs:
Early Repayment Charges (ERCs)
If you switch deals before your current fixed term ends, you may face ERCs. These fees can be significant, so it’s crucial to time your remortgage carefully.Arrangement Fees
New lenders may charge fees to set up your mortgage, ranging from £500 to over £1,000.Valuation Fees
A property valuation may be required by your new lender. Some providers waive this fee, so check their terms in advance.Broker Fees
While some mortgage brokers charge for their services, ChangeMyMortgage — offers a cashback reward for just using its services of up to £500.
How Early Can You Start the Remortgaging Process?
It’s generally advisable to start exploring remortgage options around six months before your fixed term ends though. Some lenders, however, have reduced this window to four months, so it’s wise to check with your provider.
Tip: Locking in a Rate
If you find a competitive rate early, many lenders allow you to secure it. This can give you peace of mind while allowing you to switch to a better rate if one becomes available closer to your renewal date.
How ChangeMyMortgage Can Help
At ChangeMyMortgage, we make remortgaging simple. Our platform instantly compares deals from your existing lender and the wider market, ensuring you get the best rate for your situation. You’ll also receive up to £500 cashback as a reward for just switching through us.
Additionally, we offer:
24/7 accessibility: Get personalized mortgage recommendations anytime.
Expert advice: Our brokers are available during office hours to answer your questions.
Cost-saving insights: We help you navigate fees and find the most affordable options.
Can I Remortgage Before My Fixed Term Ends?
Yes, but be mindful of ERCs. Check your mortgage terms or consult a broker to determine whether early switching is cost-effective.
Is Remortgaging Worth It for Small Balances?
It depends. If your outstanding balance is low, the fees associated with remortgaging may outweigh potential savings.
What Happens if I Don’t Remortgage?
Your mortgage will automatically move to the SVR, which often results in higher monthly payments.
Conclusion
When your fixed-rate mortgage ends, understanding your options is critical. Whether you choose to stay on your lender’s SVR or remortgage, consider the long-term financial implications carefully.
For most homeowners, remortgaging offers the best balance of affordability and predictability. At ChangeMyMortgage, we make the process seamless by helping you find the most competitive deals in minutes. With the added benefit of up to £500 cashback, there’s never been a better time to switch.
