Your mortgage is likely to be your biggest outgoing, so if your fixed rate is coming to an end soon it’s important to start thinking now about what this will mean for your finances.
After all, with mortgage rates rising sharply in recent days following a series of increases in the Bank of England base rate, and higher than expected inflation figures, your costs are likely to go up when your current deal ends. If you secured a fixed rate deal a few years ago, your current rate may be around the 2% mark, for example, but you’ll now be looking at rates closer to 5% if you want to fix again.
It’s also important to review your mortgage small print if you’re looking to repay your mortgage before your deal ends, or move home, and you want to ensure you won’t face any penalties for doing so.
Here, we look at what you should check with your lender so you know where you stand, and what to watch out for when you come to remortgage.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
1. What rate are you paying?
You may know how much you’re paying for your mortgage each month, but do you know what your current mortgage rate is?
Unsurprisingly, the higher your rate, the more you’ll pay each month, whether you have a fixed or variable rate deal. If you’ve got a repayment mortgage, your outstanding mortgage balance will gradually reduce, as you’ll be paying off the original amount you borrowed as well as interest each month. However, if you’ve signed up to an interest-only deal, you’ll only be paying the interest and you’ll still owe your original loan amount at the end of the term.
Once you know what rate you’re paying, you can compare this to current mortgage deals to see how much more you might have to pay when you come to remortgage. For example, the average two-year fixed rate is currently 5.33% compared to just 2.38% a year ago, so you might decide you want to explore lower variable rate deals, even though these won’t provide you with the same budgeting certainty.
If you do spot a mortgage deal you like, you may want to grab it while you can, depending on whether you’ll pay penalties for doing so (find out more about early repayment charges below) as the best deals don’t tend to hang around for long. Read more in our articles Five good reasons to remortgage right now and Mortgages for over 50s: what you need to know.
2. When does your mortgage deal end?
You’ll need to find out exactly when your current deal ends, so you can make sure to remortgage onto another deal at this point. If you don’t move to another deal, your lender will usually roll you onto its standard variable rate (SVR – read more about these below), and you could suddenly find yourself paying far more than you need to for your mortgage each month.
If you’re several months away from the end of your existing mortgage deal, you may not feel you’re in any rush to remortgage. However, it’s best to start your search for a new deal three to six months before your current one ends.
This will give you plenty of time to find the best option for you, and allow you to move straight onto your new rate when your current deal ends.
Fortunately, there’s plenty of choice in the mortgage market, after the turmoil following last year’s mini-budget. If you have a large chunk of equity in your home, you may be able to secure one of the best deals. However, the process of remortgaging can take several months, so it’s important to plan ahead. Make a note in your diary to check out your options leading up to the end of your deal, and speak to a mortgage broker for help.
3. What’s your lender’s SVR?
As mentioned, the standard variable rate (SVR) is the rate you’ll move onto when your mortgage deal ends, and it’s usually significantly higher than the best deals on the market. It’s essentially your lender’s standard interest rate, and you’ll remain on this unless you remortgage to another deal. Your lender’s SVR is a variable rate, so it may not stay the same, and is likely to increase if the Bank of England raises the base rate again.
For example, someone with a £150,000 repayment mortgage with 15 years left to run who is borrowing 60% of their property value would be paying £1,379 a month if they were on the typical SVR of 7.37%. Their monthly payments would fall to £1,139 a month if they remortgaged to a best buy two-year fixed mortgage rate of 4.39% – a saving of £240 a month or £2,880 a year.
There are, however, a few scenarios where it could make sense to remain on the SVR, for example if you’re just about to move house. In this case, you’ll probably want to remain on a penalty-free SVR to avoid paying a fee for moving to another deal during the process. However, it’s important to seek the advice of a mortgage broker to ensure this is the right option for you.
4. Can you take your mortgage with you if you move?
If you’re moving home, many lenders will allow you to take your mortgage deal with you to your new property. This is known as ‘porting’ your mortgage. By doing so, you won’t have to take out a new mortgage deal and pay the associated fees during the buying process.
Bear in mind that if you do want to port your mortgage, you’ll effectively have to re-apply for it, so there’s a risk you might not qualify for it under current affordability criteria if your circumstances have changed. This means that you might not be able to borrow the amount you need, or could face a higher interest rate. Before committing to porting your mortgage to a new property, make sure you’ve worked out how much this’ll cost you, and whether you might be better off moving to a new deal.
It’s also important to note that not all mortgage lenders allow this flexibility. If you aren’t sure whether you’re able to port your mortgage, it’s often best to check with your lender to see if it’s possible and what the terms and conditions of the process are. Find out more in our guide Moving house with a mortgage – what you need to know.
5. Does your mortgage have early repayment penalties?
If you want to leave your current mortgage deal before it ends, you may face eye-watering penalties, so it’s important to get to grips with these charges to avoid a nasty shock.
Early repayment charges (ERCs) could be between 1% and 5% of your outstanding mortgage balance, depending on how long you’ve got left on the deal. ERCs are essentially fees for leaving your deal early, to make up for the lender being out of pocket as a result of you not continuing to make interest payments. For example, if you have a £200,000 mortgage, an early repayment penalty could amount to anything between £2,000 and £10,000. Find out more in our article Mortgage costs and fees explained.
To avoid paying ERCs, you should ideally wait until your existing deal has come to an end before you remortgage, although in some cases if the ERCs are small and you’ve found a particularly competitive deal to move to, it may be worth leaving your deal early. A mortgage broker can ensure you get the timing right.
If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
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