If your current mortgage is coming to an end, you have a few options.
Which you choose all depends on how long you have left on your term, your current financial situation and your credit history.
Let’s take a look at your options:
Switch to your lender’s rate
If you’re on a fixed or tracker mortgage, it’s unlikely the deal will last as long as your total mortgage term. A typical full mortgage term is 25 years (give or take). In comparison, a fixed rate can last between two and ten years, and while trackers can last the lifetime of the mortgage, much shorter options are available.
So, if the deal you’re on finishes before you reach the end of your full mortgage term, what happens?
Well, if you decide not to do anything, you’ll automatically switch to your lender’s Standard Variable Rate (SVR) once your current fixed or tracker deal ends. This is your lender’s own rate, and you can find out more about it here. While you have the convenience of not being required to do anything in this particular scenario, it can be quite a costly move.
SVRs tend to be higher than most fixed or tracker deals, so you may see your monthly mortgage payments jump up once your deal ends. It’s important you keep making your repayments though, as missing them puts your home at risk. So if you’re planning to switch to your lender’s SVR, budget accordingly.
As we mentioned, SVRs can be pretty costly. For this reason, you may choose to shop around for a new deal once your current one comes to an end. This is known as remortgaging.
A remortgage can let you switch to a new deal, a new lender or even borrow more, depending on your circumstances. And you don’t have to wait until the end of your current mortgage deal to remortgage – you can do it any time.
Just be aware that most lenders charge an early repayment fee if you switch before your deal is over – and this can be very expensive. The exception is if you’re on an SVR; there’s not usually a fee if you switch from this.
If you decide to remortgage because your current deal is ending, you’ll need to take a close look at your finances and your credit history. This is because the application process will be much the same as when you applied for a mortgage the first time round. The main difference is that, rather than paying a deposit, lenders will consider how much equity you have in your home.
Learn more about remortgaging here.
Wait it out
Remortgaging can be a suitable option if you still have several years left outstanding on your full term. However, if you’re nearing the end of the life of your mortgage, lenders may be less keen to sign you up to a new deal.
So, if you’ve paid off the majority of your total mortgage and have, say, £10,000 left to pay, not all lenders will be willing to sign you up. This is because it should only take you a few years to get mortgage-free.
And it might not be the best move for you either. There’s often a fee to pay when you sign up to a new mortgage. If your current debt is very small, it might actually cost you more to pay the fee to switch to a deal with a lower rate than to stay on your lender’s SVR and pay more interest.
If you’re in this situation, get out your calculator and carefully work out whether you’ll save money switching. If you only stand to save a small amount, it may be best to just wait it out until you get mortgage-free.
Once you’re mortgage-free
If you’re on a repayment mortgage, when you reach the end of the full term, providing you’ve never missed a payment or secured more credit to your home, you should be mortgage-free. This means you own 100% of the equity in your property.
With no mortgage to pay, you should enjoy a substantial increase in expendable income each month. Just make sure you keep paying your buildings and contents insurance, so you’re covered if something happens to your home.
But if it’s an (increasingly rare) interest-only mortgage you’re on, reaching the end of your term is different. Rather than being mortgage-free, you’ll have only paid the interest on your mortgage and will still need to pay back the sum you originally borrowed.
You can find out more about your options when your interest-only mortgage end, here.
So there you have it – what happens at the end of your mortgage. For more information on remortgaging, keep an eye on the blog.
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