Switching to or From a Fixed-Rate Mortgage
Considering switching to or from a Fixed-Rate Mortgage? Read on to find out everything you need to make an informed decision.
Firstly, do you know how long you'd like to fix your mortgage for?
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Fixed-rate mortgages are very popular, with many people locking in a rate for a set period. However, they are not the only type of mortgage out there.
Here, we look at whether you can switch from a fixed-rate mortgage to another product type and what the practical implications of doing so will mean. We also identify what happens if you switch from a standard variable rate (SVR) mortgage or a tracker to a fixed product and how a broker can prove invaluable in all instances.
Switching from a variable to a fixed rate mortgage
It is possible to switch from a variable-rate mortgage to a fixed-rate agreement, and the good news is that it’s usually easier than it would be if you were doing the reverse. It is often more straightforward to exit a variable rate deal than severing a fixed rate during the introductory rates period.
Those who are on their lender’s standard variable rate can enter a fixed rate agreement with no barriers to overcome, while those still in the introductory period of a tracker mortgage aren’t typically penalised as harshly as they would be for severing a fixed rate early.
The process will involve a full remortgage either with your current mortgage provider or another lender.
How to switch
Your first step should be to make an enquiry with us so we can match you with a mortgage broker who specialises in helping borrowers change their mortgage type.
Your hand-picked mortgage broker will walk you through the following steps:
- Working out the overall cost of switching
- Finding the best lenders and fixed-rate mortgage deals
- Completing your remortgage application
Your broker will also offer impartial advice on whether it is in your best interest to remain with your current mortgage provider or consider deals elsewhere.
Can you switch from a fixed-rate mortgage to another product type?
Yes, you can. You could change to another type such as a tracker or discount rate mortgage.
There are two times that you can make a switch:
1. At the end of your fixed-rate term
If your fixed-rate term has ended, you can change your mortgage type without incurring any penalty. You can stay with your current provider or move to another mortgage lender. Your mortgage will automatically switch to your current provider’s SVR if you have not agreed on a switch by the end of the fixed-rate term.
There shouldn’t be a fee to exit the product. What you may be charged for, however, is a product fee and possibly an admin fee to close your previous account. Valuation fees might also be payable, although some lenders won’t request this, and there may be solicitor costs if one is needed.
2. During your fixed-rate term
It is possible to switch from your fixed-rate to another product type during your agreed fixed-rate term. However, remortgaging before the end of your term will usually mean paying early repayment charges (ERCs). Some lenders might waive this cost if you only have six months or less remaining on your current fix and they will typically contact you around this time to book in your new rate.
They can be substantial (typically between 1%-5% of the mortgage balance) so you need to consider carefully whether it really is the best option for you. These change from provider to provider and they are usually only worth paying if the savings you make far outweigh the exit cost.
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Things to consider when changing your mortgage type
There are a number of reasons that making a switch is a good idea – though the advantages vary depending on the product type. Plus, there will be disadvantages to a switch too. Here are some considerations to keep in mind with common switches:
Switching to a tracker
A tracker mortgage usually follows the Bank of England’s base rate, with an additional fixed amount charged on top which you and your lender have previously agreed. It means that payments on tracker mortgages can go up, but also down if the Bank of England decides to lower the base rate.
If you think the economic environment makes the base rate decrease likely, a tracker could help you save money over time in comparison to a fix – if your prediction comes true.
However, rates could go up so your payments would increase too. Like fixed-rate products, trackers are for an agreed amount of time meaning you are locked into the varying, potentially increasing payments for a set period. Some trackers, however, are flexible and come with the option to make an overpayment or pay off a lump sum of the debt.
Changing your mortgage to a variable rate agreement
A variable rate mortgage has its rate set by your lender. The lender can move it up or down as they see fit so monthly payments on these products can change too. Those with variable mortgages are therefore more at the mercy of what their lender decides, as opposed to trackers which move in line with what the Bank of England is implementing.
SVRs are usually much higher than a fixed-rate, making them more expensive. However, you won’t get penalised for making overpayments.
Switching from variable to fixed rate
If you have a variable-rate mortgage, you may want to consider moving to a fixed mortgage to lock in a rate that is cheaper than the SVR. In particular, when the Bank of England is looking to raise interest rates, switching to a fixed-rate product can help ensure that your monthly payments do not rise above a level you can afford.
If you do decide to make the switch, you will likely not be charged fees. However, while there are usually no ERCs for leaving the variable mortgage, you may have to pay a product fee for the new fixed-rate mortgage.
However, there will be instances where making this switch isn’t appropriate, so it can be a good idea to talk with a broker first.
Switching to another fixed rate mortgage
Many people want to choose another fixed-rate mortgage once a fixed-rate term has ended. You can negotiate a new fixed rate with your current provider, but you can also move providers too – an option that a broker will be best placed to help you arrange.
The advantages of a fixed-rate product often make it the most suitable mortgage for many financial situations. However, fixing will ordinarily come with a product fee to secure the lowest rates at the time. Those fees can go up to the low thousands, which, depending on the situation, could eliminate the savings you could have made on an SVR mortgage – perhaps through large overpayments.
That’s even more probable in times when the Bank of England is likely to lower the base rate. Overall, therefore, a fixed-rate product may not always be the cheapest option.
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If you’re switching from a fixed-rate mortgage to a variable-rate agreement, or vice versa, there are many reasons to use our broker-matching service.
The main benefits are as follows:
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The implications of changing your mortgage type
If you are struggling to decide whether a switch is right for you, think about these key implications of changing your mortgage type:
- Higher or lower payments – When you change your mortgage type, it is almost guaranteed that your payments will change too. Whether they go up or down will depend on the new product and the rates it comes with, but you need to think about both the short-term and long-term impact of the new monthly amount.
- Fees – If you change your mortgage type, you need to be aware of any fees you may incur first – for example, for leaving your fixed rate early or for paying a fee for a specific product.
- Overpaying your mortgage – Think about whether you have a credible plan to pay off your mortgage earlier than your agreement outlines. Timing a change on your mortgage type correctly can allow you to do so without incurring charges.
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Switching a mortgage from a fixed-rate product can be a time-consuming process. There are simply so many different products that so many different providers offer, so finding the most suitable mortgage for you can be complicated and overwhelming. Yet, getting the right product can mean you lower your mortgage payments and make payments on terms that work best for your situation.
Mortgage brokers can cut through the complexity thanks to their in-depth market knowledge. Their expertise can quickly find you a product that is appropriate for your financial circumstances. Plus, they will only ever recommend a product for which you are eligible so you are more likely to be approved the first time.
Our free, no-obligation broker matching service will connect you with the best broker for you. Call us on 0808 189 2301 or enquire with us today so we can put you in touch with a specialist.
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