What Happens When My Fixed Term Mortgage Ends?

When you originally arranged your mortgage, you may have taken out a fixed-rate mortgage for a limited term. This is most typically between two and five years, but can be as long as ten.

Eventually, though, this arrangement will end. So what happens then?

What Is a Fixed-Rate Mortgage?

If you have a fixed-rate mortgage, the rate you pay will remain unchanged for the specified period, regardless of fluctuations in interest rates. This means that you can budget confidently for that entire period, knowing you’ll always be making the same monthly repayment.

This is usually an advantage, but there are exceptions. For example, if you’d taken out a fixed-rate mortgage in November 2007, when the Bank of England base rate was 5.75%, you’d have been stuck on this level after it plunged to just 0.5%. This is rare, however, and certainly the likelihood at the moment is that rates will be rising.

What Happens When Your Arrangement Ends?

That depends on what you do. If you take no action, then your mortgage will change to a variable type, most likely a standard variable rate (SVR) mortgage. This will mean that the lender will be able to change the rate as they like, although in general SVRs tend to follow the base rate.

SVRs are also likely to be more expensive. A typical current rate would be around 4-5%, whereas a fixed-rate mortgage, depending on the term and the lender, could be 1.5% or even lower. A better option is usually to negotiate a new fixed-rate mortgage.

What Action Should You Take?

Although a fixed-rate mortgage is usually a better option than an SVR, there are exceptions, and if this applies to you it may be better to accept converting to an SVR. This could apply, for instance, if there’s not much left to repay, or if you’re intending to repay the mortgage early, since SVRs typically don’t have the early-payment penalties normal for fixed-rate mortgages.

However, most people would be well advised to approach their current lender before the fixed term ends and find out what rates they are offering for a new fixed-rate mortgage. Bear in mind, though, that this may well not be the best rate on offer.

It’s generally best to get a wide range of options before you decide on which to go with. This isn’t easy to do, though, if you’re using the traditional method of approaching each lender and then comparing offers. Much better is to use a website that will process your numbers and come out with simple recommendations for the best options. Why not try that out here on our site?