When your current mortgage deal ends, ideally you want to review your mortgage options and potentially seek out a new deal. It’s a step that could cut your mortgage repayments by hundreds of pounds every month.
Read on to find out what happens when a mortgage expires and how you could save money.
When your mortgage deal ends, you’ll usually pay your lender’s SVR
When you take out a mortgage deal, it’ll last for a defined period, such as two or five years. After the deal ends, the interest rate you pay is likely to change, which will affect your repayments.
If you don’t do anything when a mortgage deal ends, you’ll usually be moved on to your lender’s standard variable rate (SVR). You could continue with your mortgage repayments and pay the SVR. However, the rate often isn’t competitive so you could end up paying out more than you need to.
While searching for a new mortgage deal might seem like a hassle, this task could save you thousands of pounds over the full mortgage term.
Almost a third of homeowners are paying their lender’s SVR
According to a report in This Is Money, a third of homeowners have failed to renew their mortgage and are paying their lender’s SVR. On average, these mortgage holders are paying £278 more a month than they would if they’d remortgaged.
The SVR varies between lenders, but the report suggests it could be as high as 9.73% as of May 2024 – far above the most competitive deals available. In fact, the findings suggest that SVRs are often 3–4% higher than fixed-rate deals.
As you typically borrow large sums through a mortgage, even a seemingly small difference in the interest rate you pay can have a large effect on your outgoings.
For example, if you borrowed £350,000 through a 20-year mortgage with an interest rate of 4.5%, your repayments would be around £2,214 a month. Now if the interest rate increased by just 1.5% to 6%, your repayments would increase to more than £2,500.
Not only does a higher interest rate affect your monthly budget, but the cost can add up over the full mortgage term.
Remaining on your lender’s SVR could be useful if you want to make overpayments
While taking out a new deal to avoid paying your lender’s SVR could save you money, in some circumstances paying the SVR might make sense.
One of the benefits of your mortgage deal ending is that you won’t usually face an early repayment charge. So, if you want to pay off your mortgage early, whether you’re expecting an inheritance or want to make significant, regular overpayments, it could be a useful option and save you money overall.
Similarly, if you plan to sell your home soon, taking out a new mortgage deal might not be right for you.
Taking some time to consider your circumstances and plans over the next couple of years could help you assess what type of mortgage suits your needs.
You can usually lock in a new mortgage deal 6 months before your existing one ends
If you decide to search for a new mortgage deal, it’s often a good idea to start to review your options around six months before your current deal expires. At this point, you can usually lock in a new deal and give yourself plenty of time to compare your options to ensure you don’t slip onto your lender’s SVR.
You can choose to take out another mortgage deal with your existing lender or opt for another provider. As interest rates might have changed significantly since your last mortgage deal, it could be worth shopping around to see if your current lender is still right for you.
The good news about locking in a deal early is that if interest rates rise, you’ve potentially locked in a cheaper deal. If rates fall before your new mortgage starts, you can often switch to another deal.
If your mortgage deal expires soon and you’d like to discuss your options, please get in touch. We can help you review your needs and different mortgages to understand which lender could reduce your outgoings and is appropriate for you.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
