To Fix Or Not To Fix?
Is a fixed rate deal the right type of mortgage for you?
Mortgages are usually one of the biggest financial commitments you will make in a lifetime, so it's important to ensure you fully understand the options available to you. Choosing between a fixed rate or variable rate mortgage is commonly one of the biggest decisions involved when selecting your mortgage.
Fixed Rate Mortgages
A fixed rate mortgage essentially means the interest rate on your mortgage is locked for a specific period of time. Your monthly repayments and interest rate will not increase or decrease and will remain the same during the fixed term.
How long is the fixed period?
For many fixed mortgages, the period of time is normally between 2 - 5 years. When this term ends so to does your fixed rate and you are automatically switched to a standard variable rate (SVR). In most cases this will be your current lender’s SVR or a tracker rate. The benefit of having a fixed mortgage with the same monthly repayments means you can budget for monthly expenses and keep on top of your finances easier. Not knowing month to month what your mortgage payments will be can make budgeting difficult.
When your fixed rate ends
Once your fixed rate term ends there are two choices - look to move to a new deal or simply do nothing. If you choose to do nothing your lender will place you on an SVR, which will often be a higher rate than your fixed deal. With the extra interest your monthly mortgage repayments will possibly increase. It is more advisable to look for a new mortgage deal but you will need to allow for sufficient time to do this - ideally we suggest you start looking about 14 to 16 weeks before your fixed rate period expires. This provides you with enough time to switch straight to your new mortgage without the need of ever having to pay the SVR.
If you are worried about the situation of your finances and would feel more comfortable knowing the exact amount of your outgoings each month, a fixed rate mortgage is probably the best option for you.
Fixed Rate Mortgages Key Points:
- Great for monthly budgeting as you know how much you'll pay each month
- Payments will not increase during the duration of the fixed term
- Similarly payments will not decrease should the market rates drop during your fixed term
- There are short and long fixed term deals available when considering your next move
- No need to panic if interest rates rise
- If you decide to leave a mortgage within the fixed term there is often a charge for this
Options to consider at the end of your Fixed Rate Mortgage
If you are looking to remortgage at the end of your fixed term there are certain points you need to consider:
- You can remortgage with your existing mortgage provider or choose to switch to a new provider
- There will be early repayment charges if you decide to exit your mortgage early
- There is usually a period of between 3 - 6 months to accept a mortgage offered by a lender (after this time you will have to reapply)
- Try and begin your search for a new mortgage deal at least three months before your current deal expires
There are many possibilities when your mortgage deal ends and doing nothing is always an option. At Transparent Mortgage Services we would always advise our clients to explore the mortgage market as there is likely to be opportunities for money to be saved. If you would like help or assistance with this please contact our friendly mortgage advisers today!
Transparent Mortgage Services is authorised and regulated by the Financial Conduct Authority (FCA).