What happens when a fixed-term mortgage ends?
If you’re on a fixed-rate mortgage, it’s likely you’ll enjoy a low interest rate with the same, predictable repayments each month in the first few years.
But what happens when your fixed-rate deal comes to an end? Here’s a look at the options available and what you can do to keep your repayments manageable.
If you’re on a fixed-rate mortgage, it’s likely you’ll enjoy a low interest rate with the same, predictable repayments each month in the first few years.
But what happens when your fixed-rate deal comes to an end? Here’s a look at the options available and what you can do to keep your repayments manageable.
What happens when a fixed-term mortgage ends?
When your fixed-rate mortgage deal ends, your mortgage lender will typically put you on their standard variable rate (SVR) of interest. This will most likely be higher than the fixed rate you’ve been used to. It can be a bit of a shock, as you may suddenly find yourself paying a lot more for your mortgage than you bargained for.
The difference to your repayments could be hundreds of pounds a month. If you don’t want to pay more than you need to, it’s vital to give yourself time to prepare and consider your options.
While all good things may come to an end, it doesn’t need to be such bad news. The end of your fixed-term deal is a good opportunity to reassess your finances and maybe even find yourself a better deal.
What’s the difference between fixed-rate and SVR?
With a fixed-rate mortgage, your repayments remain the same for the length of your deal (term). This could be for two, five or even 10 years.
As you can guess from the name, a standard variable rate (SVR) mortgage is variable, which means the interest rate could go up or down at any time. Although it can be influenced by the Bank of England base rate, the decision to increase or lower the SVR is entirely in your lender’s hands. They can change it whenever they wish, without giving you a reason.
However, the interest rate on an SVR mortgage is almost always higher than a fixed-term mortgage.
To give you a rough idea, let’s say you’re repaying a £150,000 mortgage over 25 years and you’re on a two-year fixed-term 2% mortgage deal. At the end of the deal you’re moved onto your lender’s SVR, which is 4.5%. You’d see your repayments go from £636 a month to £834 – that’s an increase of almost £200 a month.
What are my options when my fixed-rate mortgage term comes to an end?
When it comes down to it, you’ve got two main options:
- Stay on your lender’s SVR.
- Remortgage to a new deal.
Option 1: stay on your lender’s SVR
If you can afford the changes to your monthly repayments, you might decide it’s easier to stay put and accept your lender’s default SVR. You never know, there’s even the chance the interest rate will go down, especially if the Bank of England base rate is particularly low. And even if your payments do increase, it’s unlikely that your lender will push their SVR up by an astronomical amount for fear of chasing away new customers.
That said, it’s always a good idea to talk to your lender and find out how much your future mortgage repayments could be affected if you stay on their SVR. Weigh up the pros and cons, so if you do decide to accept your lender’s SVR, at least you’ll be making an informed decision.
Standard variable rate pros:
- Early repayments charges usually (but not always) end with the fixed-rate period – on an SVR you should be able to pay off some or all of your mortgage early, or even switch to another deal without any penalties.
- Interest rates might fall – if this happens, your monthly payments will go down too.
- Remortgaging might be more expensive – once you add up booking and arrangement fees, it might cost more than paying a higher interest rate.
- No credit check – if you do nothing and stay as you are, there’s no need to go through the whole credit check process again.
Standard variable rate cons:
- Higher interest rates – while interest rates can go down, they’re more likely to be more than a fixed-rate deal, so you should expect to pay more for your mortgage each month.
- Your lender decides the rate – they don’t necessarily track the Bank of England rate, and can raise their rates whenever they want for whatever reason.
- It’s probably not the best deal – sticking to your lender’s SVR means you could be missing out on a better mortgage deal.
- Can you afford it? – if you’ve been on a fixed-rate deal for a number of years, the increase in monthly repayments can come as a bit of a shock. If you find yourself struggling and can’t make the repayments, you could risk losing your home.
- It’s hard to budget – the uncertainty of an SVR mortgage makes it much harder to budget each month. If you want the reassurance of knowing how much your monthly repayments will be, it may be best to look for another fixed-rate deal.
| Top tip Don’t just assume that the early repayment charge (ERC) will be dropped once your fixed-rate term ends. In some cases, it will run beyond that point. Check this carefully if you decide to remortgage, as the ERC could run into thousands. It might be better to stay on your lender’s SVR for a while, rather than jumping ship immediately. |
Option 2: remortgage to a new deal
If you decide to remortgage, you could either look around for a new deal with a new lender or see what your current mortgage provider has to offer.
If they can offer you a good deal, it might be worthwhile remortgaging with your current lender – there could be lower set-up costs involved, and the process may be quicker. However, it’s always worthwhile shopping around to see if you can find a better deal elsewhere, especially when interest rates are low.
Remortgaging: pros
- Remortgaging is generally quicker to process and more straightforward than applying for your first mortgage.
- If interest rates are low, you could lock in a great fixed-term deal for the next few years.
- Flexibility – if overpayments or mortgage holidays are important to you, you may be able to find a more flexible deal.
- If your home’s gone up in value – if you’ve built up some equity, you could use it to get a lower loan-to-value (LTV) rate (the percentage of your property’s value covered by the mortgage loan). Typically, the best rates are offered to those with LTVs under 75%, so a lower LTV could secure you a cheaper deal.
- Save money – remortgaging to a cheaper deal could potentially save you hundreds of pounds in repayments each month.
Remortgaging cons:
- Remortgaging with a new lender could mean going through the whole process of applying for a new mortgage again. This might involve another credit check and affordability assessment, which could affect your credit score.
- If your financial circumstances have changed – for example, you have a new baby, more debts or have become self-employed, it could have a negative effect on your application, and you might be refused a new mortgage.
- The set-up costs of remortgaging could outweigh the benefits of moving onto a lower interest rate mortgage.
- Remortgaging might not be suitable for you – it might be more difficult to remortgage if you have very little equity in your home, are close to retirement age or if the value of your home has gone down.
Before you make a decision, make sure you get expert advice from a professional financial advisor.
Your home may be repossessed if you do not keep up with your mortgage repayments.
How much does it cost to remortgage?
When you remortgage, there may be some additional costs to consider. These could include:
- Mortgage arrangement fee.
- Booking fee – to secure the offered deal.
- Valuation fee.
- Conveyancing fee.
Costs can vary and not all lenders will charge all of these fees when you remortgage. It’s important to consider the potential costs to see whether it’s worthwhile remortgaging or not. A broker can help you work this out, although they may charge you a fee themselves for the service.
Alternatively, you can get fee-free, expert advice on different types of mortgages, remortgaging and the costs involved from our trusted mortgage partner, London & Country Mortgages Ltd.
Go to L&C MortgagesFrequently asked questions
When is the best time to remortgage?
Ideally, it’s best to start looking for new mortgage deals around four to six months before your fixed-term deal is due to end. This will give you plenty of time to sort the paperwork so you can switch straight to your new deal without having to pay the SVR.
Most lenders will let you agree a rate with them three months before your current deal ends.
What happens if my remortgage application is declined?
If your remortgage application gets rejected, you’ll have no choice but to stay on your current lender’s SVR for the time being. Try to find out why your application was refused, so you can do something about it and improve your chances for next time.
The lender’s criteria may have changed since you first applied for a mortgage. Under Financial Conduct Authority regulations, lenders must check that you can afford your mortgage repayments now and in the future. This means they’re a lot pickier about who they lend to than they may have been before.
Read more on the common reasons why a mortgage application is declined.
Is remortgaging the best option?
While it’s a good idea to consider remortgaging, it might not be the best option for you.
It might be easier to stay on your current lender’s SVR, especially if you’ve the chance to overpay without an ECR penalty. Likewise, if you have a relatively small balance on your mortgage. For example, if it’s less than £50,000, it might be cheaper to stay on the SVR than paying to remortgage.
Or it could be that your financial situation isn’t currently stable enough to remortgage. Say you’ve gone freelance or your partner is no longer working. If you can afford the repayments, it might be better to stick with the SVR until can show you’re financially stable again.
The Editorial Team - Compare the Market
Experts in personal finance, insurance and utilities
Compare the Market’s Editorial Team is made up of industry experts with decades of experience in personal finance, insurance and utilities. Each of our authors has an area of expertise, where they can share their extensive experience to help you get a better deal, by finding the right product and saving money.