When a fixed rate mortgage ends what happens?

Should I stay with my current lender or switch to another one?

That really depends on a client’s circumstances and if they’re planning to make any changes. The main factor is what the interest rates are. The cheapest isn’t always the best, but we need to see what the most cost-effective option is.

If your current lender has the right deal for you at that time, you might stay with them. But if another lender has the right type of deal for you, you might change. There’s a slight difference in the process when you’re staying with your current lender. If you’re not changing anything – you’re not borrowing any more or paying any lump sums off – it can often be easier to go through the process with your existing lender.

But if there are changes such as having made improvements to your property, your current lender might only use the property value from when you first took the mortgage on, and apply some index-linked calculations to that. If you have put an extension on the property, your current lender won’t necessarily take that into account towards the value.

That could impact your interest rate, because of the Loan to Value calculations that lenders use. So, occasionally, it can make sense to change lenders purely because of the valuation process. It could give you a better option in the Loan to Value and the rates available.

What are the pros and cons of switching my fixed rate mortgage?

Staying with the same lender, if there are no changes, can be a very simple process. In fact, some lenders can even issue the mortgage offer literally within minutes of the application going in.

When you’re changing to another lender, that new lender knows nothing about you, so they’re going to want to check pay slips and bank statements before issuing a mortgage offer. There’s a legal process in terms of changing from lender A to lender B. Most lenders cover the cost of those legal fees, but there are still various forms that clients need to complete.

It all comes down to the deal – if it’s better than your current lender’s, how much better is it? Are there sufficient savings to make it worth going through the process – providing pay slips and bank statements and spending time completing solicitors’ forms?

Can the bank refuse to renew my mortgage?

Yes, they can, but it’s very rare for them to refuse to offer a new deal for an existing client who is not making any changes.

If you’re changing to a new lender or making any changes with your existing lender, it will come down to credit score and affordability criteria. It is possible that a lender could refuse a new mortgage based on the changes taking place.

Should I remortgage at the end of a fixed rate mortgage?

It really comes down to your circumstances. If something’s going to change short term, such as moving house, going travelling or anything that means you might not want to be tied into a new mortgage, it could make sense to sit on the standard variable rate for a period of time.

The standard variable rate is higher than other rates lenders offer, but it does mean there are no penalties to make any changes. Some lenders offer deals that might not be as good as a fixed rate, but are better than the standard variable rate and have either no penalties or very small penalties to make changes.

It might be worthwhile moving on to one of those rather than taking a brand new fixed rate. Again, that’s why it makes sense to look at it about six months before the end of the deal. We can run through these things. Your mortgage broker can go into the options available if a fixed rate isn’t the right thing to do, to help you avoid sitting on the standard variable rate.

How much will my mortgage increase when my fixed rate ends?

That’s almost impossible to say – because every lender has a different standard variable rate. Even if you were to remortgage onto a new fixed rate, some people have been on quite low rates historically over the last few years. The rates could now be higher.

Equally, people could have been on rates that are higher than they are now and they might find their payments will drop. A mortgage won’t necessarily increase if you are taking a new fixed rate. It could increase, it could decrease.

There also might be changes around the amount of borrowing which affect your payments. Plus, even if the interest rate is higher, it may be possible to extend the mortgage term. In that case, even if the rate has increased, your payments might not necessarily increase at all – by adding a few more years onto the mortgage. It would depend on whether that is possible for you today.

Will there be any fees at the end of my fixed mortgage?

If you’re just going to move onto the standard variable rate and not take a new deal, there won’t be any fees. The mortgage will just move straight over onto the standard variable rate.

A new fixed rate, variable rate or tracker rate might have fees, but we would look into whether or not it’s cost effective to pay those fees to get a cheaper deal. Some of the cheaper interest rates do have arrangement fees, but usually you would only pay those if it was cost effective to do so.

Also, your current lender might have ‘redemption fees’. This is not an early repayment charge for getting out of the mortgage early, but a fee to clear the mortgage off and move to another lender. Again, that’s something to take into account in deciding whether to move to another lender – can you save the equivalent of the redemption fee by changing?

If it’s a case of changing from one lender to another, solicitors would need to be involved. Most lenders either cover this cost directly or by giving the client cash back. However, there might also be other incidental fees, telegraphic transfer fees or ID fees that need to be considered.

How can a mortgage broker help?

The value that we would add is to review the current deal, not just what’s available now across various lenders, but also with the existing lender. We also have insights into whether rates might be on a slightly downward trend or going up – and whether it makes sense to take a fixed or a product that tracks the Bank of England rate, which is a slightly different type of deal.

As we mentioned before, it makes sense to look at this about six months before the end of your deal. A good mortgage broker won’t just submit the application and leave it until the end of your fixed rate. We continue to review rates, and if they should drop between the point of applying for the mortgage and when your current fixed rate ends, we review the options and potentially secure a product at the new rate – all in advance of the current fixed rate ending.

SWITCHING LENDERS MAY INCUR ADDITIONAL COSTS

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage.