What do you do when your fixed rate mortgage is coming to an end?
So, you’ve been enjoying the sweet stability of a cheap fixed-rate mortgage, maybe you were even lucky enough to lock in at under 2% and now it’s coming to an end.
What’s next, you ask? Well, don’t worry, I’ve got some tips and tricks to share with you today.
First things first, there’s one superhero you definitely want to have on your side: a mortgage adviser.
Did I just refer to myself as a superhero?
If you’ve followed us for a while that won’t come as a surprise…
Mortgage Man is here!
True though, that’s what I call myself.
Enough about that…
So let’s talk about what happens when your fixed-rate term comes to an end.
You see, fixed-rate mortgages are like a comfy security blanket, a bit of peace of mind, You know exactly how much you need to pay each month, and you can budget like a pro.
But when that term is up, it’s time to face the music. So what so you do…
First let me play out some scenario figures to get my point across of what “ends” really means.
So to keep things simple…
When you bought your home lets presume you were to have borrowed £100,000
Lets also presume this was 18 months ago…
The original mortgage term was over a 30 year term and you managed to bag a 1.99% 2 year fixed…
Meaning you had monthly repayments of exactly £369.12 (Interest would be £165.83)
In 2 years time your balance would have reduced by £4,878.96…
So your mortgage at the point of the fixed rate coming to an end stands at £95,121.04 (give or take a few pounds depending on how
the lender calculates interest daily /monthly)…
But you get the jist…
When the 24 month point comes, you automatically revert to the lenders standard variable rate.
The standard variable rate can be different for each bank, building society or specialist lender.
This is the point that we would encourage you to re-mortgage (chose a new product)…
Loads of things could happen at this point and ill cover them later, but for now… back to the numbers…
To give you an idea of how each banks variable rate is different ill list a few…
This is correct as of today. Monday 30th October.
Barclays SVR @8.74%
HSBC @ 6.99%
Natwest @ 7.74%
Nationwide @ 7.99%
Halifax @ 8.74%
Virgin Money @ 9.49%
I’ll stop there, that gives a good spread and the majority of those lenders you should be familiar with…
So lets Look at what that would mean if you went on to the variable rate and how much of an impact that would have on your monthly payments.
I’ll use HSBC & Virgin Money as examples so you get the high & the low…
Virgin Money @ 9.49%, £95,121 with a term of 28 years remaining would be £809.64 pcm
HSBC @ 6.99%, £95,121 with a term of 28 years remaining would be £645.82 pcm
You read that right…
That could mean a jump of £440.52 per month…
That is simply crippling…
So presuming you are not doing any of the following any time soon:
Paying off the mortgage (from any means such as inheritance, lottery win etc)
you would want to avoid the variable rate and choose a new product.
There are other products to choose from other than just a fixed rate mortgage. To keep things less complicated I’ll stick for now with fixed rates, but other types of products are available, the reason I’m sticking with a fixed is because this blog is referring to someone who’s already had that type of product and what happens next…
Trackers, Discounted, Capped rates almost deserve a blog of their own…
But again… to keep it simple let’s pretend for the next 2, 3 or 5 years
Maybe even 10 years…
Or even 28 years (term fixed are a possibility)…
So depending on what fits and is most suitable for you determines the payments you will make over that next fixed rate period.
So you need to contact your lender, or a mortgage broker to look at your options.
When you speak to your lender they should let you know what options you have…
Now note, all lenders have different products so some may not have a 2 year product available, some might not offer a 10 year fixed… it really does depend.
Your lender could also offer products that have expensive fees to obtain the better rate.
If you speak to a good mortgage adviser what they will do (what we do) is look at the options you have available with your current lender and then compare that with the rest of the market place.
And as you’d expect, if it’s cheaper to go elsewhere that’s normally the route we would take you on.
Presuming of course affordability and criteria of that lender allowed.
If I want to cover my arse completely id also go as far to say credit score, property valuation and all the other bits and bobs you’d expect that could get in the way.
A good mortgage adviser will do all that research before putting any deals in front of you.
When would you start to look at a new deal…
That’s completely up to you. But I’ll tell you how we do it for all of our existing customers.
We touch base with our customers 7 months from that deadline day, we send an email / text and sometimes a phone call to let them know we will be in touch in 1 months’ time to get them booked in for an appointment.
In fact, we do all three… you never know if someone’s number or email has changed…
So here is another example of what todays rates are doing. For this example I’ll use a loan to value of 66% meaning you have a mortgage balance that is roughly 2/3 of the value of your property.
So in this scenario your property would be worth £150,000.
Stay with me now…
We are nearly there…
A good example of a fixed rate products are detailed below.
2 years @ 5.14%
3 years @ 5.04%
5 years @ 4.74%
And 10 years at 4.94%
In monetary terms this would mean…
…. Wait for it….
2 years @ 5.14% would be £534..58
3 years @ 5.04% would be £528.85
5 years @ 4.74% would be £511.83
And 10 years at 4.94% would be £523.15
So even if you are looking at taking the cheapest rate (in this instance a 5 year fixed) your payments would have increased £142.71pcm.
Now the aim here for you and the top tip is to start to plan early.
Get that mortgage appointment booked in as soon as you are within 6 months of your current deal coming to an end.
Speak to your own lender or mortgage broker and tell them absolutely everything, give them all of your thought and feelings about now, and the next few years, let them take that away and do all the dirty work for you.
They should be able to recommend a product that although it may be more expensive than you would like it will be the right product for you and your budget.
Once you’ve gone firm on your choice we would let you know what documents we need in order to make this happen and for that mortgage to come out the other end.
Now depending on route we choose, there will be a valuation of the property, you also may need a conveyancer for the legal side of the process. But don’t worry all that will be explained when it reaches that side.
We aim to wrap you in cotton wool through the entire process just like we would have when you bought the property in the first place.
A good mortgage adviser will review everything and hopefully help you make sure that no matter what your payments are that you can always afford these payments should anything out of the ordinary happen like, death, illness or injury. Adding peace of mind when you need it most.
Our team at PJS go that one step further and when we lock you into your next milestone. We closely monitor the rates and when the lender lowers their rates we will do all the work again to ensure you get that cheaper product.
Clearly it’s out of our hands and it could well be that they don’t reduce, but being realistic, 6 months is a very long time in the mortgage market and we would expect to see rises and reductions in that period.
The point being is if we lock you in today 180 days ( 6months) from your current deal coming to an end, that should be the worst rate you will get, it may also be the best but it certainly won’t be any worse than that.
We can hope…
And that’s all we can do is hope that rates come down over the next 4-5 months meaning we can actually then get you a cheaper product closer to the time.
Do yourself that favour and plan ahead, don’t bury your head in the sand, speak to a professional, let them do your research and let them hold your hand through this next stage of your mortgage life.
Here’s the clincher – a good mortgage adviser can save you money.
Ask Martin Lewis.
He won’t bullsh!t you either,
He says… and I quote.
“A good mortgage adviser is worth their weight in gold”
We all love Martin.
Yes I know the interest rates are scary right now so yes your payment may be increasing but a good mortgage adviser will constantly monitor the interest rates and make sure you are locked in to the best possible deal available to you when the time comes to switch.
They know the mortgage market inside out and can find deals and negotiate terms that you might not be able to secure on your own. Even with your own lender.
Ask them, they would have to tell you the same.
Mortgage advisers are regulated by the Financial Conduct Authority (FCA), which means they have to meet specific standards, ensuring you get fair, honest and more importantly expert advice.
Hope as always this was useful…
This is the second draft, laptop batter died half way through and I hadn’t autosaved so apologies if this isn’t quite as good as it could have been.
It’s late and I’ve got to get some kip for a very busy last working day of the month!
Take it easy.
Mortgage & Protection Adviser.