FINANCIAL WELLBEING HUB
Fixed term
mortgage ending
FINANCIAL WELLBEING
Fixed term mortgages give you the peace of mind of knowing exactly what your monthly payments will be for the duration of the fixed period – usually between two and five years. But what happens to your mortgage when that fixed rate comes to an end, and what should you do as the time approaches?
Current interest rates may be higher than they were when you took out a mortgage a few years ago. This means that the end of your fixed term deal could bring a nasty hike in monthly outgoings. In this article, we’re going to look at what you should do to plan ahead and make sure you can afford to keep making the repayments.
Your options when your fixed rate period ends
When your fixed rate mortgage comes to an end, you have two options:
- Let the fixed term expire, and your mortgage reverts to your lender’s standard variable rate (SVR).
- Set up a new deal to lock in an interest rate for a set period.r.
Fixed term ending
If you go with the second option, you can choose between:
Product transfer:
This means staying with your current provider but moving to a different product that may be lower than your lender’s SVR. This keeps paperwork to a minimum, as your lender already knows you and you usually won’t need to go through affordability or credit checks. However, product transfers are less flexible and also mean you won’t have access to the full range of deals on the market.
Remortgage:
Switching to a new lender and taking out a whole new mortgage. This means you can make changes such as borrowing more or reducing your balance, but it takes longer and you’ll have to go through credit and affordability checks just as you did when you first applied for a mortgage.
Mortgage fundamentals: remortgage vs product transfer
Of course, you also have the option of selling your property. Once your fixed term ends, you usually won’t be subject to an early repayment fee if you decide to do this.
When to start looking for a new mortgage deal and what to do
Whichever option you choose, don’t leave it until the last minute. Plan ahead and start looking out for a new deal around three to six months in advance so that you don’t go into the higher payments.
This timeframe should give you enough time to compare deals and complete any necessary checks and paperwork before your fixed term ends. Here’s a checklist of things to do:
- Review your current mortgage contract to find out when your fixed term ends
- Speak to a mortgage advisor to find out what the best deals on the market are at the moment
- Call your lender to find out what your options are for staying with them but moving to a different deal
- Work out what you can afford each month, and then budget for your new monthly payment amount – see our advice on creating a budget
- See whether you can afford to make an overpayment to reduce the balance before switching to a new deal – this can make the new payments more affordable
Tip: remortgaging often comes with fees attached, so be sure to budget for those as well. You may be able to add this fee onto your mortgage if you can’t afford it upfront. However, bear in mind that you’ll be paying interest on it, so you’ll end up paying more overall.
Will there be any impact on my credit rating?
That’s because when you apply for a mortgage, you’ll be subject to a hard credit check – a full review of your credit score. These appear on your credit report, and if your application is declined then this can negatively affect your rating.
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