What happens when your fixed mortgage rate ends?

What Happens When Your Fixed Mortgage Rate Ends?

A fixed-rate mortgage gives you certainty for a set period, usually two, three or five years. During that time, your interest rate stays the same, so your monthly repayments are predictable.

But what happens when that fixed period comes to an end?

In most cases, your mortgage does not end. Instead, your lender will normally move you onto a different interest rate unless you arrange a new deal.

Understanding what happens next can help you avoid paying more than necessary and give you time to consider your options.

What happens at the end of a fixed-rate mortgage?

When your fixed-rate period finishes, your mortgage will usually move onto your lender's standard variable rate, often called an SVR, or another follow-on rate set out in your mortgage agreement.

Unlike a fixed rate, a variable rate can change.

That means your monthly mortgage payment could go up or down depending on the rate your lender charges.

For example, imagine you have:

• £180,000 left on your mortgage

• 20 years remaining

• a fixed interest rate of 3%

If your mortgage moves to a significantly higher variable rate when the fixed period ends, your monthly repayment could increase.

The exact amount will depend on your outstanding balance, remaining mortgage term and the rate your lender applies.

Will my mortgage automatically end?

No.

The end of your fixed-rate deal is not normally the end of the mortgage itself.

If you have a 25-year mortgage with a five-year fixed rate, for example, you will still have around 20 years left on the mortgage when the fixed-rate period ends.

Your mortgage simply continues under the terms that apply after the fixed period.

You normally have several options at this point.

Option 1: Stay on your lender's variable rate

You can simply allow your current deal to finish and continue making payments.

Your lender will normally move your mortgage onto its standard variable or follow-on rate.

This can be convenient because you do not need to apply for a new mortgage.

However, the rate may be higher than the fixed rate you were previously paying.

Variable rates can also change, meaning your monthly repayments may change in future.

Before allowing your mortgage to move onto a variable rate, it is worth checking what the new rate and estimated monthly payment will be.

Option 2: Take a new deal with your existing lender

Your existing lender may offer you another mortgage product.

This is commonly known as a product transfer.

For example, you might move from your current five-year fixed deal to a new two-year or five-year fixed rate with the same lender.

One advantage is that the process can sometimes be simpler than moving your mortgage to another lender.

Depending on your circumstances and the lender's requirements, there may also be less paperwork involved.

However, staying with your current lender does not necessarily mean you are getting the most suitable option available to you.

Option 3: Remortgage to a different lender

You could also consider moving your mortgage to another lender.

This is known as remortgaging.

A new lender will normally assess factors such as:

• your income

• your employment status

• your existing debts

• your credit history

• your property's value

• the amount you want to borrow

• your loan-to-value ratio

The new lender may also require a valuation of your property.

Remortgaging can give you access to different mortgage products, but there may be fees and other costs to consider.

What is a standard variable rate?

A standard variable rate is an interest rate set by your mortgage lender.

It can change over time.

Unlike a tracker mortgage, an SVR is not necessarily directly linked to the Bank of England base rate.

A lender may increase or decrease its SVR for a number of reasons.

Because of this, your monthly mortgage payment can change while you are on the rate.

Some borrowers remain on an SVR because they value flexibility, while others choose to arrange another fixed or variable mortgage deal.

When should I start looking at my options?

It is usually better not to wait until the day your fixed-rate deal ends.

Starting earlier gives you time to understand:

• when your current deal expires

• whether any early repayment charges apply

• what your outstanding mortgage balance is

• your property's approximate value

• what your new monthly payment could be

• what alternative mortgage options may be available

Some lenders allow mortgage offers or product transfers to be arranged in advance, although how early you can do this varies between lenders.

Check the terms of your existing mortgage before making changes.

What are early repayment charges?

Many fixed-rate mortgages include an early repayment charge, usually shortened to ERC.

This is a fee that may be payable if you repay or move your mortgage before the fixed-rate period has finished.

For example, if your fixed rate ends in September but you repay the mortgage in June, an early repayment charge could apply.

Once the relevant fixed or introductory period has ended, the associated ERC will often no longer apply, but you should always check your individual mortgage agreement.

Other fees may still apply when switching mortgages.

What happens if I do nothing?

If you take no action, your mortgage will normally continue and move onto your lender's applicable follow-on rate.

Your lender should tell you what will happen before your current deal ends.

It is worth reading any letters or emails they send you, as these should explain:

• the date your current deal ends

• the rate you will move onto

• your new monthly payment

• any alternatives your lender is offering

Doing nothing is therefore an option, but it is still worth understanding what it will cost.

Could my monthly payment increase?

Yes.

If the rate you move onto is higher than your existing fixed rate, your monthly mortgage payment is likely to increase, assuming the other terms of the mortgage remain the same.

For example, moving from a low fixed rate to a higher variable rate could result in a noticeable increase in monthly repayments.

The reverse is also possible if the new rate is lower.

The effect depends on your mortgage balance, remaining term and interest rate.

Does my property's value matter?

Yes.

One figure lenders often consider is your loan-to-value ratio, or LTV.

LTV compares the amount you owe on your mortgage with the value of your property.

For example:

Property value: £300,000

Mortgage balance: £180,000

Your approximate LTV would be:

£180,000 ÷ £300,000 × 100 = 60%

Your LTV can affect which mortgage products may be available to you.

If your property has increased in value or you have repaid a significant portion of your mortgage, your LTV may be lower than when you originally took out the loan.

However, property values can also fall.

What if my circumstances have changed?

Your financial situation may be different from when you originally took out your mortgage.

For example, you may have:

• changed jobs

• become self-employed

• had children

• taken on additional borrowing

• reduced your working hours

• experienced credit problems

• increased your income

If you apply for a mortgage with a new lender, your circumstances will normally be assessed again.

This is one reason it can be useful to review your position before your fixed-rate deal expires.

Can I borrow more when my fixed rate ends?

Potentially.

Some homeowners consider additional borrowing when reviewing their mortgage, for example for home improvements.

Whether this is possible will depend on factors including your income, affordability, property value, existing mortgage balance and the lender's criteria.

Borrowing more against your home will increase the amount secured against it and may increase your monthly repayments or the total interest you pay.

What if I plan to move house?

If you expect to move home soon, this can affect what you decide to do when your fixed rate expires.

You may not want to commit to a new mortgage product without understanding whether it can be transferred to another property and what charges might apply.

Some mortgages are portable, but portability is not a guarantee that a lender will approve a future mortgage application.

Your circumstances and the new property would normally still need to meet the lender's requirements.

Checklist before your fixed mortgage rate ends

A few months before your fixed period finishes, it can be useful to check:

• the exact date your fixed rate ends

• your outstanding mortgage balance

• the remaining mortgage term

• your current monthly repayment

• the rate you will move onto

• any early repayment charges

• your property's approximate value

• your approximate LTV

• whether your income or circumstances have changed

• whether your lender is offering you another deal

Having this information available can make it easier to understand your options.

Frequently asked questions

Does my mortgage finish when the fixed rate ends?

No. In most cases, only the fixed-rate period ends. The mortgage itself continues until the full mortgage term finishes or the loan is repaid.

Do I need to remortgage?

Not necessarily. You may be able to stay on your lender's variable rate, take a new product with your existing lender or move to another lender.

Will my lender contact me?

Your lender would normally contact you before your existing deal ends and explain what will happen next.

Will I have to pass another affordability check?

If you apply to move your mortgage to another lender, the new lender will normally carry out its own assessment.

The requirements for changing products with your existing lender can be different.

Can I pay off my mortgage when the fixed rate ends?

You can usually repay your mortgage, but you should check your mortgage terms for any applicable charges or fees.

The bottom line

When your fixed mortgage rate ends, your mortgage does not usually disappear or become immediately repayable.

Instead, you will normally move onto your lender's standard variable or other follow-on rate unless you arrange something else.

Your main choices may include:

staying with your existing rate after the fixed period, switching to another deal with your current lender, or remortgaging elsewhere.

The important thing is to understand what is happening before your current deal expires so you have time to consider the available options.