Getting out of a Fixed-rate Mortgage
Lee and Neezam are here to tell us all about getting out of a fixed rate mortgage deal. .
Can you get out of a fixed rate mortgage? And can you re-mortgage a fixed rate mortgage early?
This is something we get asked a lot, especially with rates changing all the time and people’s circumstances changing. There are occasions where you might want to review your options earlier, especially if you’re currently fixed into a mortgage rate.
Everything I say today, do check with your mortgage broker because products do vary. They are different depending on the lender and even lenders have their own array of products with different rules on them. But very generally speaking, yes, you can come out of a fixed rate mortgage.
Most, if not all, lenders will allow you to do that. The question is why you want to do it. We’ll look at whether it is cost-effective to do it or whether you have no other option. It’s also important to look at the early repayment penalty.
The lender will charge you an early exit fee for redeeming that mortgage whilst you’re still fixed in. Usually it’s that fee is a percentage of the balance of the mortgage left. It also depends on how long you’re fixed in for and how far into your fixed rate you are, as well.
Always seek advice to make sure it’s the right thing for you to do – there might be alternative options.
What happens when you come out of your fixed rate mortgage?
Your fixed rate deal could be for two years, three years or five years – those are the most common. After that fixed period ends, most of the time what happens is you fall onto the mortgage lender’s ‘standard variable rate.’
This interest rate can go up or down as it’s not fixed. There’s no real benefit of being on the standard variable rate unless there are specific circumstances that mean it’s the right thing to do: for example, you’re moving house soon and you don’t want to be tied into a new mortgage product.
What we generally advise is not to do nothing – try to avoid the lender’s standard variable rate. Very often it is higher than most mortgage products out there. What happens is your fixed monthly payments will end and it’s likely that they will increase. They could be subject to change if the lender puts their rates up or down.
Instead, you might want to fix your mortgage again or you might want to look at another type of mortgage product. But do try to avoid staying on the lender’s standard variable rate unless there’s a good reason to.
What are my options when my fixed rate mortgage ends?
This is something we get asked a lot by First Time Buyers. It’s a bit like your car insurance or home insurance – you’ll be shopping around when that contract comes to an end, and it’s no different for your mortgage.
Let’s say you’re on a two-year fixed rate deal. When that deal ends, if you do nothing, you’ll revert to the lender’s standard variable rate. They’ll contact you ahead of that to remind you that your deal’s finishing and state the rates they are willing to offer you. You usually get that three to six months before your deal ends.
That’s the time to look at what options there are across the market. There might be a more competitive deal or a more suitable lender available to you. In that case, you would normally remortgage and switch over to them. That’s something you could do yourself, or something that a mortgage broker can help you with. Obviously using a broker saves you time and means that you’re comparing the wider market as well.
So in a nutshell, you either move on to a standard variable rate, you stay with your current lender on a new deal or you switch to another lender.
Is it worth getting a new mortgage deal?
Absolutely. If your initial rate period is ending, most of the time it is a lot better to start seeking a new deal than just remain on the lender’s variable rate. That rate is generally quite high. So review your mortgage against the open market.
You might choose to fix your rate in again, you might go for a tracker rate or whatever is most suitable at the time. But don’t just sit on the variable rate. It’s highly likely that you’ll find a better deal elsewhere.
Alternatively, you could be tied into a fixed rate for the next few years. In some instances it can be better to pay out of your current mortgage deal and get into a better one – sometimes that does work out better in the long run.
Again that’s somewhere where you really need advice, so speak to a broker. We’ll see if there is a better deal out there for you and if it’s worth coming out of your current one to do so. You should always start looking at deals before your current one ends.
What other advice do you have on getting out of your fixed rate deal?
Don’t leave it to the last minute – give yourself enough time. Generally, we’ll contact our clients around five or six months before their deal comes to an end. We’ll start the conversation, look at what documents we need, what your future plans are.
Do you want to raise any more money, or is it just a straight switch? Are you looking to move in the near future? Is your budget the same, has it increased or decreased? So don’t limit it to the last minute. Give yourself plenty of time because it can be a lengthy process.
There is a little bit of legal work required when you remortgage. So generally we advise having a minimum of 12 weeks to make sure that everything is lined up and your new deal is ready to start when you need it to.
Again, if you use a broker we’ll deal with everything for you – we’ll manage the bank or the building society direct. We’ll make sure we’re working on the right deal for you.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Approved by the Openwork Partnership on 06/11/2023
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS