A fixed-rate mortgage is just that- a mortgage where the interest rate on your payments doesn’t change for an agreed length of time. Once this term is up, you face a decision - do you remortgage? Or should you ride out the Standard Variable Rate? We look at your options.
A fixed-rate mortgage is just that – a mortgage where the interest rate on your payments doesn’t change for an agreed period of time
Once your period of fixed interest is over, you have to make a decision. And if you do nothing, your mortgage reverts to your lender’s standard variable rate of interest (SVR).
What happens if I do nothing when my fixed-rate period ends?
If you do not act, you will stay with an SVR mortgage. Your costs will almost always be higher than your previous payments.
As the name suggests, a variable rate varies, and can change at the drop of a hat. When your agreed rate expires, your new interest rate is now up to your lender, so there isn’t much you can do to prevent an increase in your repayments.
Lenders do not need to disclose why they’re changing your mortgage interest rate.
What affects the interest rate on an SVR mortgage?
Once you are out of your fixed-rate period, your mortgage loan interest rate could rise for a number of reasons.
These include, but are not limited to:
- housing market conditions;
- economic growth (or decline); or
- changes to the Bank of England base rate.
Despite this, hiking up the prices by an extortionate amount wouldn’t make much sense as customers can always go elsewhere, so realistically this does provide some protection.
Moving away from your SVR mortgage
The instability of a standard variable rate mortgage makes it difficult for people trying to control their budget, which is why the majority of homeowners seek out other types of mortgage.
You don’t have to sign up to what your current lender is offering if it doesn’t suit you.
You can remortgage either with a different mortgage provider, or attempt to get a new deal with your current one.
Costs of remortgaging
The process of remortgaging is likely to include additional costs, such as:
- an arrangement fee;
- a booking fee – AKA a reservation fee (this will not be refunded if you decide not to take a mortgage out);
- a valuation fee (usually free when remortgaging); and
- a mortgage broker fee.
The total cost of all of these fees could potentially be higher than your potential savings, so working out your best option requires careful consideration.
You should not feel obliged to stay with your previous lender; it’s always a good idea to shop around to see what other mortgage lenders have to offer.
Is there ever a plus side to staying with an SVR?
You should be aware that standard variable rate mortgages are usually more expensive than other interest rates to begin with, but there are some benefits to staying on an SVR mortgage.
Early repayment of your entire mortgage usually incurs no extra charges on this rate and due to fluctuating interest rates, your rate could even go down.
Should I get a new mortgage deal?
Deciding whether or not to get a new deal on a mortgage is entirely up to you, and isn’t something to be impulsive about.
Sometimes remortgaging isn’t your best option, and at other times it makes things much more straightforward – and cheaper.
We would always recommend you speak to an independent mortgage broker who can review the whole market and provide the best advice to fit your particular circumstances.
Contact our conveyancing solicitors to find out more about our remortgaging services.