When a fixed term mortgage ends, borrowers must decide to either opt for the lender’s standard variable rate (SVR) or explore remortgaging options.
Fixed-rate mortgages offer stability with consistent monthly payments throughout the term, protecting homeowners from fluctuations in interest rates.
If your fixed-rate mortgage term is drawing to a close soon, it’s very important to understand what this transition means, including the possibility of changing interest rates and affordability.
Proper Finance will help explain the options available and important considerations to make.
What Happens When My Fixed Rate Mortgage Is Ending?
As your fixed-rate mortgage term draws to a close, your lender will typically contact you to discuss the next steps. This communication is very important as your mortgage lender will outline the options available to you.
If you opt to take no action upon the conclusion of your fixed-rate term, your lender will likely transfer you to their standard variable rate (SVR) mortgage.
While SVRs offer flexibility in overpayments and the possibility of rate decreases, they often come with higher interest rates and lack the predictability of fixed-rate mortgages.
Borrowers must weigh these factors carefully to determine the most afforable mortgage offer possible. Once you have considered the options available, we recommend acting promptly to ensure a smooth transition and help you plan for any big financial changes before your existing mortgage deal expires.
What Is The Difference Between Fixed Rate and Standard Variable Rate Mortgages?
Fixed-rate mortgages provide borrowers with a predetermined interest rate for a specified period, typically ranging from two to ten years. The stability of a fixed rate ensures predictable monthly payments, regardless of changes in the wider economy.
On the other hand, standard variable rate mortgages offer flexibility but come with the risk of fluctuating interest rates. SVRs are determined by individual lenders and may not directly mirror changes in the Bank of England base rate.
What Are The Pros and Cons of Sticking With The Standard Variable Rate?
| Pros |
Cons |
| Flexibility in overpayments. |
Higher interest rates. |
| Possibility of rate decreases. |
Lender’s discretion in rate changes. |
| No credit check required. |
Potential affordability challenges. |
Remaining on the lender’s SVR provides the convenience of avoiding the remortgaging process. It offers flexibility in overpayments and doesn’t require a credit check.
However, SVRs typically come with higher interest rates and are subject to the lender’s discretion in rate changes, potentially leading to challenges for homeowners in affording their mortgage payments.
Can I Remortgage When My Fixed Term Mortgage Ends?
Alternatively, remortgaging presents an opportunity to secure a new deal that might be better for your current financial circumstances. Whether with your existing lender or a different provider, remortgaging allows you to potentially access lower interest rates and more favourable terms.
What Are The Pros and Cons of Remortgaging?
| Pros |
Cons |
| Potential for lower interest rates. |
Application process and associated fees. |
| Increased flexibility in deal selection. |
Impact on credit score with additional checks. |
| Possibility of saving on monthly repayments. |
Suitability considerations based on financial circumstances. |
Remortgaging presents an opportunity to secure a new deal with potentially lower interest rates and better terms.
While the process may involve additional fees and require checks that could impact your credit score, it often offers increased flexibility and the possibility of saving on monthly repayments.
What Do I Need To Consider Before Remortgaging?
Before committing to the remortgaging process, you must conduct a thorough assessment of your financial situation. This includes budgeting for associated costs such as arrangement fees, valuation fees and legal expenses.
Seeking professional advice from a mortgage advisor can provide invaluable guidance in deciding what you can afford in paying off your mortgage.
Be Prepared In Advance Of Your Fixed-Rate Mortgage Ending
The conclusion of a fixed-rate mortgage term can affect the affordability of your homeownership.
Whether you transition to the standard variable rate or explore remortgaging options, by weighing the pros and cons, and seeking expert advice where necessary, you can secure a mortgage arrangement aligned with your long-term financial goals.
