Are you on a fixed rate mortgage? Is it coming to an end in the next year or less? Be prepared and follow our simple guide before you make your next move…
Because the interest rate has been so low over the past decade or so, the majority of mortgage holders will have chosen to borrow using a fixed rate mortgage.
The advantage of a fixed rate mortgage is that your monthly payments remain the same for the term of the loan – you may have chosen anything between two and seven years for your fixed rate.
But what happens when the fixed rate is coming to an end? First, you should start considering your options at least four months before the end date. This will allow you to shop around, get some advice from an independent mortgage adviser, and work out what your next move should be.
You will have three options:
- Do nothing and your current mortgage lender will move you onto a standard variable interest rate which will probably be higher
- Look for another mortgage deal with your current lender
- Look for another mortgage deal with another lender
Things to consider
It’s important to know what fixed rate you are on and to find out what the lender’s standard variable rate is. Knowing these two figures will help you to decide your next move.
Have your circumstances changed? Perhaps you have had a drop or an increase in income. You might have started a family, accrued debt, or had an increase in outgoings. Your property could have increased in value because of house price inflation or improvements you have made.
How long are you planning on staying in the current property? Are you staying put in your forever home, considering up- or down- sizing in a couple of years – or perhaps moving very soon?
How to decide
If you are moving soon, consider going on to a rate with no redemption penalties, so that you can get a new mortgage deal for your new home. If you are planning to stay, long-term redemption penalties may not be an issue, but could stop you making large capital repayments in the future from say an inheritance or family gift.
Some mortgage products will allow you to take the mortgage with you to avoid any penalties, whilst some have no fees at all. This is where it is advisable to talk to an independent adviser to get help deciding on your next deal.
Do you need to pay off some debts? Mortgages are one of the cheapest ways to borrow money, so including some money to pay off your debts could be the best way to become debt-free. Many people consider this option but there are some disadvantages in doing this that should be discussed with an expert.
Had an increase in income? You could consider shortening the term of your mortgage, so that you will be mortgage-free sooner. But of course, bear in mind that your monthly payments will go up accordingly.
Had a decrease in income? Take a look at options that lower your monthly payment. You might be able to increase the term of your mortgage – fine for younger home buyers who aren’t planning to retire soon.
Your credit situation
Usually, if you go with another rate with your current lender, this can be done easily, with limited affordability checks or new valuation on your property.
However, if you are adding to the amount you are borrowing or increasing the term of the mortgage, your lender will want to carry out affordability checks; you might need a new valuation on your property, proof of income, checks on bank statements and credit records checked.
These extra services will come with legal fees, although many lenders will pay for these, so that you don’t have any extra outlay, but it is always worth looking at what is available as there may be more appropriate mortgages from other providers which may be more cost effective.
You might also like to refer to our blog on improving your credit rating.
If you would like to discuss a remortgage or any other financial matters, we will be happy to help. Please contact us without obligation.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire and Hampshire. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email firstname.lastname@example.org.