When your current mortgage deal ends, what happens? More importantly, what should you be doing to prepare for this change?
You should get a reminder from your mortgage lender that your current deal is coming to an end a few months before it does. However, even if you don’t, you should have a vague idea of when it will finish, and it’s worth noting this date down so you can prepare.
Keep in mind that if you want to switch to a new mortgage before your current deal is over, your lender may charge you. Factor this into your sums when you’re working out whether or not it’s worth switching.
Typically speaking, if you’re on a fixed-rate mortgage or a tracker (providing it’s not a lifetime tracker), your mortgage will switch to your lender’s own rate – also known as the Standard Variable Rate (SVR) – when the deal ends. This may be more or less than what you were previously paying, but SVRs are usually higher than trackers, and they lack the security offered by a fixed-rate mortgage.
Your lender will move you automatically on to its SVR at the end of your current mortgage deal, so you don’t really have to do anything at all when your deal finishes – and if that suits you, you can just stick to the SVR. However, if you fancy a change, read on.
Should I change?
As we said earlier, SVRs are rarely the most economical choice. If you were previously on a tracker mortgage, you may find that your monthly payments noticeably increase if you move to an SVR. To avoid this, it’s worth asking your lender what their latest tracker deals are.
Remember, you don’t have to stick with your lender. While there may be a charge if you try to switch lender or product before your current deal comes to an end, this isn’t the case once it has ended. This means it’s worth shopping around to see what else is out there.
So, there’s plenty of reason to change your mortgage once the deal ends rather than simply stay on your lender’s SVR, but what are your choices?
A tracker mortgage typically tracks the Bank of England’s base rate and is usually set a few percentage points above this. Because of this, trackers are typically the cheapest deals on the mortgage market.
Having said that, if the base rate rises, so will your mortgage payments. And as the base rate is currently set at just 0.5 per cent, it’s unlikely that it will come down – although if it did and you’re on a tracker, you’d get the benefit of this.
What trackers don’t offer is security. You can’t be certain that your repayment this month will be the same next month, and if you like to know exactly how much is going out of your account each month, a tracker may not be for you.
A fixed-rate mortgage is, as the name suggests, fixed. So, whether the base rate goes up or down, your payments will stay the same for the duration of the deal you’ve chosen. Fixed-rate mortgages can last between two years and as long as ten years.
If you like the security of knowing exactly how much money you need to pay towards your mortgage each month so you can budget accordingly, a fixed-rate is probably the product for you. However, you should be sure that this security will make up for the fact that if interest rates drop, you won’t get the benefit.
Having said that, the Bank of England hasn’t changed the base rate since 2009, and as it’s already so low, the only place for it to go is up. If you’re on a fixed-rate mortgage, a rate rise will have no impact on your payments, and you could save money compared to if you’re on a tracker or SVR.
So, if your current mortgage is ending, it’s usually a good idea to switch rather than simply move to your lender’s SVR. As well as asking your current lender what other products they have, you can also shop around using a price comparison site. Just remember that lenders don’t release all their offers to these sites, so you might also want to consider using a mortgage broker or approaching your preferred mortgage provider directly.
If your own circumstances have changed since you took out your mortgage – perhaps you’ve had a baby and your money needs to stretch further, or you’ve had a promotion and can afford to pay more – factor this into your search so you can find the mortgage that’s best for you. Remember, the product that most suited you when you bought your house might not be the best option now.
Another thing to consider is your credit history. If your credit history wasn’t quite perfect when you took the mortgage out, or if it was non-existent because you hadn’t borrowed before, chances are – if you have kept up with your mortgage payments – it will be in a better position now. You may find there are more attractive deals available to you this time around.
Ultimately, you need to look at your circumstances and needs as they are now, not when you bought your home, and base your search around this. Give yourself plenty of time before your current deal comes to an end and you should find the right new mortgage for you.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.