What do I need to know?
Many people have misconceptions about how their mortgage rate can change over time. Some people have misconceptions about how their mortgage rate can change over time. They believe that they cannot have a fixed rate after their initial deal, or that they can only secure a new mortgage product in the last few months prior to the end of their current deal. This is all incorrect and could be costing you financially.
Over the last 4-5 years, there have been significant changes in mortgage interest rates. Depending on the length of your mortgage deal, you may be nearing the end of the initial period. Or you may simply be curious to understand how you can keep ahead of the market.
When you take out a new mortgage, you will select either a fixed rate or variable (usually a base rate tracker) rate. The lender will either have a fixed end date to the deal, or it will run for a set number of months after the loan commences. It is worth checking as often you will have a mortgage deal which is slightly less or slightly more than the length of time you expect. For example, a 5-year fixed rate mortgage may only be fixed for 57 or 63 months, depending on the lender and the date you complete.
The bank will advise you that once you are 3-4 months from the end of your fixed rate period, you are eligible to select a new deal, or you can leave your mortgage to revert to a variable rate. Some lenders will initially direct you to the mortgage adviser who arranged the original deal, but you are under no obligation from the bank to use the same adviser for your next deal. The bank will often provide a simplified view of the options available, and it can be hard to determine the most suitable option available to you. Once you select a new deal after a short reflection period (usually seven days), the transfer is considered complete. While your new mortgage rate will not usually start until the end of your current fixed rate period, you would face exit charges in order to change to a different product or bank.
What action could I take?
The alternative approach which is often not considered is to review the market when six to seven months remain on your current mortgage deal. If there is an attractive deal available through a different bank, then an offer for a re-mortgage will typically be valid for six months. As you are not bound to complete on a mortgage offer like you would be in accepting a deal from your existing lender, it allows you to secure a deal in advance of your deal ending. This protects you from rising interest rates, but also allows you to take advantage of any improvements in the market. The costs to arrange this are extremely low and often the savings can be significant.
By following these tips, you can ensure that you are getting the best possible deal on your mortgage rate. Review the market regularly and be prepared to switch lenders; this will protect you from rising interest rates and save you money in the long run.