Reaching the end of a fixed-rate mortgage term can sometimes bring about a sense of uncertainty, particularly if you previously fixed at a low rate (with an arbitrary illustration being one or two percent) or if your circumstances have changed.

Speaking with a broker can help and our team regularly provide advice, guidance or support to homeowners or investors about what their options are and what the most suitable route may be in their circumstances.

In this article, we will explore what happens when your fixed-rate mortgage ends and discuss the available options for homeowners. Specifically, we will focus on the pros and cons of re-fixing your mortgage versus not doing so.

Understanding the End of a Fixed-Rate Mortgage

A fixed-rate mortgage is a type of home loan where the interest rate remains unchanged for a specific period, typically ranging from two to five years.

Typically, once the fixed term has ended the mortgage will revert to the lender’s standard variable rate (SVR), which might not be the most financially advantageous position and therefore, exploring alternative options could help homeowners secure better deals and potentially save money.

Re-fixing Your Mortgage

Re-fixing your mortgage involves renegotiating the terms with your current lender or switching to a new lender; this is known as remortgaging.

This option provides stability by fixing the interest rate for another term, usually between two and five years but products are available that allow you to fix for longer (10 years for example).

Pros:

• Rate Stability: Re-fixing your mortgage allows you to secure a new fixed interest rate, shielding you from potential future rate increases.
• Budgeting and Planning: With a fixed-rate mortgage, you can accurately budget your monthly payments, making it easier to manage your finances.
• Peace of Mind: Knowing that your mortgage rate won’t change provides peace of mind and financial security.
• Release Equity: If your property has increased in value, there may be the option to increase your mortgage amount and in doing so release equity. This can be a cheaper option than a traditional loan.

Cons:

• Limited Flexibility: Re-fixing your mortgage locks you into a new fixed term, reducing your flexibility to take advantage of potential interest rate decreases.
• Potential Costs: Depending on the lender and the terms of the new mortgage, there may be costs associated with re-fixing, such as arrangement fees or legal charges.
• Early repayment charges: There can be early repayment charges that you need to consider if you wish to make overpayments or clear the mortgage during the fixed term.

Not Re-fixing Your Mortgage

Choosing not to re-fix your mortgage means reverting to your lender’s SVR, which is typically higher than fixed rates. This option is suitable for homeowners who prefer flexibility or anticipate a potential change in circumstances.

Pros:

• Flexibility: Staying on the SVR gives you the freedom to make overpayments, underpayments, or pay off your mortgage early without early repayment charge.
• Potentially Lower Costs: If the SVR is lower than the new fixed rates available, not re-fixing could potentially save you money in the short term.
• Market Monitoring: By staying on the SVR, you can keep an eye on interest rate trends and take advantage of a favourable rate environment in the future.

Cons:

• Uncertain Costs: The SVR is subject to changes, and your monthly payments could increase if the lender decides to raise rates.
• Financial Risk: Without a fixed-rate mortgage, you are exposed to potential interest rate hikes, which could impact your monthly budget and affordability.
• Lack of Budgeting Certainty: Monthly payments on the SVR can vary, making it challenging to plan and budget effectively.

Remortgaging offers stability and peace of mind but does offers less flexibility. On the other hand, not remortgaging provides more freedom but exposes you to potential interest rate increases.

Ultimately, the decision depends on your personal circumstances, risk tolerance, and financial goals. Consulting with a mortgage advisor or financial professional can help you navigate this decision-making process and find the most suitable solution for your specific needs.

If you have any questions about remortgaging, one of our advisors will be able to assist. You can call the team on 01322 553282 or contact us online.