A mortgage is arguably the biggest financial commitment you’ll ever make, so understanding the options available to you is extremely important. One of the biggest decisions you face when choosing a mortgage is whether you should go for a fixed or variable rate. If you’ve taken out a fixed-rate mortgage, your interest rate is locked in for a fixed period. In other words, the interest rate – and consequently your monthly mortgage repayment – will remain unchanged for an agreed number of years.
SET PERIOD OF TIME
The interest rate stays the same for the set period of time, usually between two years or five years. When the fixed-rate term expires, you’re automatically switched to a standard variable rate (SVR). This is usually either your lender’s SVR or a tracker rate. As the monthly repayment stays the same throughout the agreed term, it’s easier to budget for monthly expenses and stay on top of your finances.
ALLOW SUFFICIENT TIME
Once the fixed-rate term expires, you have two choices – either do nothing or look to remortgage to a new deal. If you do nothing you’re put on an SVR, which tends to be higher than the fixed rate. And, because you’ll pay more interest, your monthly mortgage repayment might go up. If your fixed-rate period is about to end, you should evaluate your current mortgage and consider switching to a new mortgage deal. It’s a good idea to start looking about 14 to 16 weeks before your fixed-rate period expires. This will allow sufficient time for you to switch straight to your new mortgage without ever paying the SVR.
If you’re concerned about the stability of your financial situation and would rather know exactly how much your monthly mortgage repayments are each month, a fixed-rate mortgage could be the right option for you.
Key points to consider about fixed-rate mortgages include:
• You know how much you’ll pay each month, helping with monthly budgeting
• Your payments will not go up during the fixed term
• If market rates drop, you wouldn’t benefit from lower repayments
• You can choose a short or long fixed-term deal while thinking about your next move
• If interest rates go up, you can relax – yours will stay the same
• There’s usually a charge for leaving a mortgage during the fixed term
If you are coming to the end of a fixed-rate mortgage and are looking to remortgage, you can – but you need to understand the implications before you make a decision. It’s possible to remortgage with your existing mortgage provider or switch to a new one. Whichever option you choose, it’s likely that you’ll have to pay fees for exiting your existing mortgage early. When a lender offers you a mortgage, you usually have between three and six months to accept it – after that, you’ll have to reapply. That’s why you should start your search when your current mortgage deal has at least three months or more to go. The end of your mortgage deal could open up some interesting possibilities. Doing nothing is an option, but it’s always worth researching what else is out there as you might find there’s money to be saved.