Should you stay with your current lender?
When you reach the end of your existing fixed-rate mortgage, sticking with your lender might sound like the safest option. After all, you’ve already gone through the mortgage process once – why would you want to do it again?
The simple answer is that it could potentially save you money. A lot of money.
This guide is designed to explore the positives and negatives of sticking with your current lender at the end of your fixed rate mortgage. We’ll explore when it’s best to stay where you are and when shopping around for a better deal can significantly lower your monthly payments and the overall cost of your mortgage.
Coming to the end of your fixed-term mortgage
When you reach the end of your fixed term mortgage, you’ll be transferred onto your lender’s standard variable rate (SVR), unless you’ve put a new deal in place.
With so many mortgage products available from hundreds of lenders, knowing the best deal for your circumstances can be tricky. This is why some borrowers simply stick with their current lender, either on a SVR, or by accepting a product transfer – even if they don’t necessarily represent the best value.
Some homeowners are more determined to shop around and look for the best deal they can find. This can be done individually, or with the help of a mortgage broker who will search the market and interact with lenders on the customer’s behalf.
All of these approaches have positives and negatives depending on the homeowner’s individual circumstances. The question is – which is best for you?
Transitioning to a standard variable rate
Letting your current fixed-rate mortgage deal expire and transfer over to your lender’s SVR is arguably the easiest option when your fixed-rate deal comes to an end, but you can be almost certain that it won’t be the cheapest.
Standard variable rates are typically higher than those offered by other mortgage products. This means that when you switch to your lender’s SVR, you can expect your monthly mortgage repayments to increase.
Each lender will have their own variable rate. SVRs aren’t directly tied to the Bank of England base rate, but lenders will change their rates based on the cost of borrowing. For example, if the Bank of England were to raise its base rate by 1%, your lender may increase their variable rate by 1% to match. It’s also possible that lenders might increase their rates higher than any change to the base rate.
Lenders can change their SVR for a number of reasons and they may decide to make a change at any time. This means that borrowers with a SVR mortgage can’t be certain that their mortgage repayments will be the same from one month to the next.
Standard variable rates do have some advantages that make them suitable for some homeowners. Most SVRs don’t apply overpayment fees, so if you are looking to repay your mortgage quickly with savings or extra income, this kind of mortgage can work well.
Switching to a new product with your existing lender
Sometimes when customers are approaching the end of their fixed-term mortgage, their lender will approach them with a new deal. This is often referred to as a product transfer and once you have reached an agreement with your lender, the new deal will come into effect once the old mortgage has ended.
Choosing to switch to a new deal with the same lender is generally quicker than remortgaging, as the process isn’t subject to the same checks. You’ll also be able to sidestep any early repayment fees, property valuation expenses or legal costs that might arise from remortgaging.
Although there are advantages to transferring your mortgage with your current lender, it still might not be the cheapest option. If the rate of your new deal isn’t as low as other mortgage products on the market, you may find that even with any savings you make on legal fees that you ultimately end up paying more in the long run.
Remortgaging with a new lender
To keep your mortgage repayments affordable once your fixed-term comes to an end, it’s often best to take the time to shop around to find the best deal.
You can approach lenders directly, as some will have rates that are only available to customers directly, however with hundreds of lenders and thousands of mortgage products available, it can be difficult to be sure that you have secured the best rate.
When it’s time to arrange your next mortgage deal, it’s important to understand all of the options available to you. A mortgage advisor can compare mortgage products from both high street banks and specialist lenders and help you decide on the best deal depending on your circumstances.
Even if you have approached lenders directly to see what rates are available, your broker may be able to find deals that you have missed or have access to exclusive rates. The rule of thumb is to be as thorough as possible when searching for the best mortgage deal and a broker will be able to cover a lot of ground quickly and give you helpful expert advice.
For the best friendly, expert advice contact us today or give us a call on 0161 443 4830.
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We’ll take care of the whole remortgaging process and make sure you find the best possible deal.
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