Your mortgage will revert to your lender’s standard variable rate (SVR) of interest once your fixed rate arrangement expires. It’s critical to comprehend what this could mean for you and what you should do (if anything).
You may have locked in your rate up to five years ago (or even longer), and a lot has changed since then, both in your personal situation and in the mortgage market as a whole. You may be able to move to a better offer once your fixed-rate mortgage expires.
When my fixed-rate mortgage expires, what are my options?
If your fixed-rate mortgage contract is coming to an end soon, you have two options: do nothing and your lender will switch you to an SVR mortgage, or remortgage to a new deal.
What will happen if I keep my SVR mortgage?
An SVR mortgage’s interest rate will nearly always be higher than your fixed rate. To illustrate the difference, a typical two-year fixed-term mortgage rate in April 2020 was less than 1.5 percent. In contrast, the average SVR was 3.5 percent or higher.
The SVR might also be altered at any time, at the discretion of your lender. It can rise for a variety of reasons, including changes in the Bank of England base rate, but it’s vital to understand that the lender can raise it at any time without giving a reason. And, while disproportionately high increases are unlikely to discourage new consumers, they can theoretically increase them by any amount.
This makes long-term budgeting difficult because you never know how much your mortgage payments may climb in the months and years ahead. This is why the majority of homeowners prefer to have a special mortgage package.
What happens if I decide to refinance my home?
If you decide to remortgage, you have two options: try to negotiate a better deal with your existing lender or shop around for a better bargain with a different lender. A mortgage broker can be extremely beneficial in this regard. Based on your unique circumstances, your mortgage broker can examine the entire market and recommend the best mortgage deals for you.
If your circumstances have changed, your lender will want to know because this could affect your affordability assessment and credit score. Having children, taking on extra debts, or becoming self-employed are all common developments that can affect your mortgage prospects.
What are the remortgaging costs?
There are frequently additional charges associated with remortgaging. Some examples are:
- Fee for prepayment (which may apply beyond the length of your fixed rate)
- Payment for arrangement services (can be high)
- Booking fee (often up to £200)
- Evaluation cost (though with remortgaging this is often free)
- Cost of conveyancing (again, usually free when you remortgage)
- Mortgage broker commission (if applicable)
Sometimes, the combined fees could potentially surpass the savings you stand to realize by refinancing to a new deal, so this should be carefully considered (again, your mortgage broker will help you work this out).
When is the optimal time to refinance?
Ideally, you should begin arranging for a remortgage roughly six months before your fixed rate period expires. Acting expeditiously can also help you avoid further fees. The exact date and time of your remortgage may be determined by a number of other factors.
The majority of lenders will allow you to negotiate a rate three months prior to the beginning of payments. However, keep in mind that you may lose out on a cheaper price later on, so be careful to conduct research and ask for guidance.
Consider that your fixed-rate period may include early repayment fees that extend beyond the duration of your offer. These fees can sometimes amount to tens of thousands of pounds, so you may be better off sticking with the SVR for a few months rather than refinancing right away.
Check out our remortgaging guide for additional information.
Does it make sense to obtain a fresh mortgage deal?
In certain situations, refinancing may not be the best option. Although it’s a good idea to start thinking about remortgaging well in advance, it’s crucial not to hurry into it, since sometimes it’s best to continue with what you already have.
On occasion, having an SVR mortgage will not be a significant disadvantage and may even make things easier. SVR mortgages usually don’t charge extra fees if you pay off your mortgage early. For example, if you can pay off your mortgage with a lot of extra money (like an inheritance), there aren’t usually early repayment fees.
Similarly, if your outstanding debt is less than £50,000, any new mortgage fees could eat into any potential savings, and many lenders will not consider providing you with a mortgage of this size. In addition, lenders may be hesitant to grant a remortgage if your financial status has drastically altered, such as if you or your spouse are no longer employed or if you have incurred new debt. If you believe you can still afford the payments on your new SVR mortgage, keeping it may be the simpler option until your financial situation improves.
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Bottom line :
When your fixed-rate mortgage contract expires, you have two options: do nothing and your lender will switch you to an SVR mortgage, or remortgage to a new deal. A typical two-year fixed-term mortgage rate in April 2020 was less than 1.5%, while the average SVR was 3.5%. When is the optimal time to remortgage? You should begin arranging for a mortgage six months before your fixed rate period expires. Early repayment fees can sometimes amount to tens of thousands of pounds, so you may be better off sticking with the SVR for a few months.
Remortgaging – getting a fresh mortgage deal may not always be the best option. Having an SVR mortgage will not be a significant disadvantage and may even make things easier. Lenders may be hesitant to grant a remortgage if your financial status has drastically altered.