What happens when my fixed-rate mortgage ends? Will your Mortgage Lender Offer you Preferential Rates? Should you look elsewhere?
In this article, I’m going to be asking Do Existing Mortgage Lenders Offer Preferential Rates? What you can do about it if they don’t…
The answer is no, not always. It would be a pretty short article if they did, wouldn’t it? Better mortgage deals come on the market all the time, so it could be worth your while changing lenders if you are not locked in to a fixed rate deal. But when should you start thinking about switching from your existing lender, to a lender who will save you money?
- When Your Current Mortgage Deal Is Coming To An End – If your fixed rate mortgage deal is about to end you will automatically switch to your lenders standard variable rate (SVR), which will see an increase in your monthly mortgage repayments.
- When Interest Rates Change – This will affect how competitive your current deal is, so it’s worth keeping an eye on it and possibly saving yourself some money on your monthly repayments.
- Review Your Mortgage Regularly – If you are not tied in to your mortgage with early repayment penalties, it is always worth doing a yearly check to see how your current deal compares to others on the market.
Although it won’t necessarily have anything to do with getting preferential rates, there are some occasions when sticking with your current lender is your best option, so let’s look at those first.
When To Stick
- You Have A Small Mortgage Balance – If you don’t have a lot left on your mortgage you might struggle to find a better deal with a new lender.
- You Are In Negative Equity – If your property loses value you could find yourself in negative equity. This means that you owe more than your property is worth. It is not likely that switching from your current mortgage provider will make you financially better off, unless the rates have substantially dropped.
- You Are In A Fixed-Term Deal – If you leave a fixed-term deal before the term of that deal has ended, you could be charged an early exit fee, but if the rates have dropped since you started the deal it could work in your favour to stick around.
All sound reasons for staying put. However, in most cases it is definitely advisable to search the mortgage market and seek out the most competitive rates. Let’s look at the top reasons for switching lenders:
When To Switch
- Your Current Mortgage Finishes Soon – Your initial mortgage payments will normally increase once you are placed onto a higher SVR, so give yourself time (I would advise 3 months) before your lower rate comes to an end to start looking at new mortgage deals.
- You Can Make Overpayments – Maybe you’ve had a huge pay rise or inherited a large sum of money, and have decided to use this financial windfall to pay off more of your mortgage each month, (in which case you’re a better person than me; I’d buy a Porsche). If it’s not possible for you to make overpayments with your current mortgage you could look for a new deal and reduce the length of your mortgage. This will increase your mortgage payments, but will save you money in interest costs.
- You Want A Fixed Mortgage Rate – Borrowers often want to be locked into a fixed-rate deal because it gives them the certainty of what their payments are going to be each month. Once you have gone onto your lenders variable rate it is possible that your payments will increase, so it’s worth seeing what other fixed-rate deals are about.
- Mortgage Rates Have Reduced – If mortgage rates drop consistently over time then you might find that your current mortgage rate isn’t as competitive as it used to be. So maybe it’s time for a change.
I would always advise seeking the advice of a mortgage broker before you make any final decisions.
Ok, so you’ve read my article ‘Will My Bank Offer Me The Best Mortgage As An Existing Customer?’, as well as the last sentence I wrote, and you’re going to go to a broker for advice. But let’s talk a little bit about the process.
Things To Consider Before You Switch
- The Cost – Naturally you’re going to want to know the costs involved in switching from one lender to another. The costs could include an early exit fee from your current mortgage product, an application feel to secure your new deal, and valuation and legal fees.
- Could I Just Switch From One Bank To Another? – You could, but as I’ve said before, banks rarely offer you the best rate, and you would still need to meet all the criteria of the new lender, it’s not the ‘easy option’.
- How Long Does It Take? – Switching lenders normally takes about four to eight weeks; longer if there are complications, so as I pointed out earlier it makes sense to start looking at new mortgage products in advance of your fixed term ending. Switching lenders takes longer than simply switching deals with the same lender, mainly because the application process will be more in depth.
Pros And Cons At A Glance
As with everything, there are going to be advantages and disadvantages to sticking or to switching. Here are some of those at a glance:
- A potentially better rate than you’ll receive if you stay with your current provider.
- If your financial situation improves you could reduce the length of your mortgage and reduce your interest costs.
- Finding another fixed-rate deal will provide peace of mind that your payments won’t change for another set period of time.
- There could be extra costs involved with switching lenders
- It can be more difficult to switch lenders if you have a change in financial circumstances or are in negative equity.
And so there you have it, What happens when my fixed-rate mortgage ends, when it comes to mortgages you will not necessarily be rewarded for loyalty or receive any preferential treatment when it comes to getting the best rates. I would always recommend that you go to a professional mortgage broker, who will help you to navigate the market and find the right deal for you. Feel free to drop us a line, we are always happy to give advice on mortgage products and potentially save you some money!
Your home may be repossessed if you do not keep up repayments on your mortgage.