A fixed rate mortgage is a loan that you use to pay off the capital borrowed to pay for your home, on which you pay a fixed rate of interest to the lender, over a set amount of time. The benefit of this type of mortgage is the predictability and ease of cash flow planning. The disadvantage is you are locked into your interest rate, even if the interest rate drops. Or interest rates rise sharply at a time when your fixed rate mortgage is due to end. Here we explore what action to take if you have a fixed rate mortgage coming to an end.
What to do if Your Fixed Rate Mortgage is Ending
We have seen a steep rise in interest rates. If you have a fixed rate mortgage that is due to end soon you are likely to be stung paying a much higher rate when your deal ends. So what should you do if your fixed rate mortgage is coming up for renewal?
Check When Your Current Mortgage Deal is Due to End
Knowing exactly when and how your circumstances are due to change enormously helps you plan for any due adjustments. Check your fixed rate mortgage contract to find out exactly how long you have before your recurrent deal ends. Normally if you take no action you will be moved onto the lender’s standard variable tariff. This could represent a huge jump in your outgoings that you may not be able to meet, unless you take action.
Make a Budget
Familiarise yourself with how much you currently pay per month on your mortgage repayments. Check what the outstanding mortgage balance is and calculate what it will be when your current deal comes to an end. You will need this information when you apply for a new deal. Calculate your total household outgoings to ascertain how much wiggle room you have for an increase in mortgage repayments. Although there are options, it is still best for your finances in the long run to clear your mortgage debt sooner rather than later. So knowing your maximum budget for mortgage repayments will help you to make difficult decisions.
Contact Your Lender
Don’t be afraid to contact your lender. Have as much information ready as you can. Fortunately borrowers have the option to switch to interest-only payment terms for up to six months, providing you with the opportunity to catch up on payments and credit scores will not be affected. It’s important to remember that missing payments or taking a total break on payments, called a mortgage holiday, will contribute to your credit report. Lenders also offer a delay of twelve months before taking repossession proceedings against borrowers who are unable to meet repayments. Your broker might also be able to help with products from other banks. Prestige Business Management works with Windfall Finance, a fantastic mortgage broker who has looked after many of our clients. Our clients can request an introduction to find out in what ways Windfall Finance can help you.
Speak to your current mortgage lender about conducting a product transfer. It is possible to switch from a fixed rate mortgage to another product with the same lender when your existing deal ends. Ask what rate you could get by switching to a different product with the same provider. This is different to automatically shifting onto their standard variable rate, which is often more costly than other options, due to it being a default offer. Some lenders will offer existing customers exclusive rates that aren’t available to the general public or sometimes even brokers, so it’s always worth contacting your lender first to find out if this is an option before you compare with others.
Possible Early Bird Deals
It is possible that some lenders will offer you a favourable deal if you lock in a new rate three to six months in advance. When your current fixed rate mortgage ends, If so you will be moved onto the rate that you pre-selected when your current fixed rate mortgage comes to an end. This will protect you if interest rates increase again in the meantime. You need to be aware that there is a chance that the opposite could happen and interest rates actually fall before your current deal ends. As long as the new one hasn’t already begun, some mortgage providers will allow you to cancel your fixed rate mortgage deal without paying a fee. Meaning that you can find another, cheaper deal. So you should monitor rates during this period. However it’s worth bearing in mind that if you do decide to cancel a deal and go to another lender, you will be subject to affordability checks all over again, which will be reflected in your credit report.
There’s no way to accurately predict mortgage rates, although past trends can offer some clues. Mortgage rates peaked in October 2022 and have fallen gradually since. The initial rise can be attributed to the increases in interest rates introduced by the Bank of England and market panic following the mini-budget in September 2022. Whilst the initial triggers have calmed inflation remains stubbornly high. This means that future increases in the base rate can’t be ruled out, meaning that mortgage rates could still potentially rise.
At Prestige Business Management we can help your Business
A good mortgage broker is able to tailor their advice according to your circumstances and talk you through what options are available and right for you. Prestige Business Management can help you with your mortgage preparations and recommend the perfect mortgage advisor when you feel ready. Call us today on 0203 773 2927.