As a homeowner, understanding the dynamics of mortgage renewals is key to ensuring financial stability and could potentially save you thousands over your mortgage term. The initial fixed-term period, typically lasting two to five years, eventually gives way to the mortgage lender’s Standard Variable Rate (SVR), and this is likely to be at a higher rate than your current product. This means that when your current rate comes to an end, your monthly repayments are likely to increase significantly. In this blog, we’ll explore the importance of taking proactive measures before your fixed-term period expires to secure the best mortgage deal and avoid potential pitfalls.
Initial Mortgage Deals: When you secure a mortgage, you typically begin with a fixed, tracker, or discount rate for a specified period. These initial deals often come with lower interest rates compared to the standard variable rate.
Standard Variable Rate (SVR): Once the initial deal period concludes, borrowers are typically transitioned to the lender’s SVR. The SVR is a variable interest rate that the lender sets and can change at its discretion. It’s often higher than the initial rates offered in fixed or tracker deals.
Remortgaging: If you prefer not to continue with the SVR, which could result in higher monthly payments, you have the option to remortgage. Remortgaging involves switching to a new mortgage deal with either your current lender (we call this a product transfer) or switching to a different one. This could be a fixed-rate mortgage, a tracker mortgage, or another type of deal, depending on what aligns with your financial situation and preferences.
Why Act Before Your Fixed-Term Expires:
- For the best outcomes, it’s advisable to begin exploring new mortgage deals up to six months before your fixed-rate period concludes. This timeframe allows plenty of time for the necessary paperwork to be processed, enabling a seamless transition to your new mortgage without the need to revert to the Standard Variable.
- Your lender will inform you about the transition to the Standard Variable Rate (SVR), and simultaneously, your mortgage broker is likely to reach out to discuss the available options. With their professional expertise and comprehensive industry knowledge, your mortgage broker can navigate the entire mortgage market. This ensures that any recommended deal aligns genuinely with your circumstances. You can trust that the advice provided is in your best interest, as your broker considers your situation when offering guidance.
- It is worth noting that when your lender reaches out to you, they will only inform you about mortgage and product deals that they have available. They will not tell you if other lenders are offering more competitive rates or products or if you’d be able to get a better remortgage deal elsewhere. A good mortgage adviser can compare rates being offered with your current lender with that of all the other lenders on the market, and offer independent advice as to whether you should do a simple product transfer or remortgage elsewhere.
- When you come to remortgage, your circumstances may have changed from when you initially took the loan out. For this reason, you may want to make amendments to the loan term or amount. For example, if your income has increased, you may decide that you’d like to shorten the mortgage term to pay off the loan sooner. Alternatively, you may have a growing family and wish to release equity from your home to pay for an extension or to make home improvements. It is important to discuss any changes in your circumstances with your mortgage adviser to ensure that they offer personalised, tailored advice.
Considerations: Regardless of whether you aim to keep the same mortgage balance and term or make amendments to your loan, it is crucial to explore various mortgage deals when the time comes to remortgage. Staying on the SVR might make sense if the rates are competitive or if the cost of remortgaging outweighs potential savings. However, in many instances, borrowers choose to remortgage to secure a better deal and often reduce the monthly payments.
Do you want to discuss your remortgage options or want some advice? Get in touch with our Mortgage and Protection Advisors who will be able to help. Call Laura on 07708 525784 or email firstname.lastname@example.org