Coming to the end of your mortgage? Where to go next

If you've been a homeowner for a few years now and your current mortgage deal is coming to an end, you'll need to start thinking about remortgaging to a new one.

Houses in a nice street on a sunny day

Although this can feel like a hassle, the good news is that mortgage rates are now at their lowest ever levels and by switching to a better deal, you could find your monthly repayments come down significantly – particularly if you've built up a decent chunk of equity in your home. 

So, if you are soon to remortgage, how do you go about it and which deal should you go for?

When should I apply for a new mortgage?

You should think about applying for a new mortgage two to three months before your existing deal comes to an end. It can take a month to get an offer from a mortgage lender (though this can sometimes be quicker) and an offer will typically be valid for three months or to a specific completion deadline.

As with anything financial, it pays to shop around and compare what the different providers are offering. But it's also worth checking with your existing lender to see what it can offer you. If you decide to move to a different lender, you don't have to tell your existing one as this will be taken care of as part of the legal work.

Once you have chosen your mortgage and you have an Agreement in Principle from the new lender, you can complete your application. 

How easy is it to remortgage? 

If you're not moving home, switching to another mortgage will be more straightforward. But you'll still need to assess how much you can borrow, and this will depend on how much equity you have in your home, what your income and outgoings are, and your credit rating. Our handy calculator should give you an idea of how much you'll be able to borrow and what your monthly repayments are likely to be. 

When you apply for a new mortgage, it can be tempting to bump up the term again, perhaps back to 25 years to keep repayments down. But by doing so, you'll end up forking out thousands of pounds in additional interest. Instead, if you can afford to, reduce the term of your mortgage to say 20 years. That way you'll save yourself five years' worth of interest. 

However, be aware that reducing the length of your mortgage will increase your monthly mortgage repayments. For example, if you had a mortgage of £150,000 on a rate of 2.5%, you'd pay £673 a month over a 25-year term, but £795 a month over a 20-year term. 

What will it cost to remortgage?

Unfortunately, remortgaging doesn't come cheap. Take a look at the list of fees below to give you an idea of what you'll have to pay:

  • Some lenders will charge a booking or processing fee to secure a mortgage, typically around £100 - £150. 
  • Many mortgages also come with product fees which can cost anywhere from £500 to £2,500. Bear in mind it may be work out cheaper to opt for a mortgage with a higher interest rate but lower fee than one with a lower interest rate and higher fee. 
  • Your new lender will charge a valuation fee for commissioning a valuation of your property (typically £300-£400). 
  • You'll have to pay legal fees to your solicitor, though you may find your lender covers some of this. Fees will vary depending on the solicitor, but expect to pay around £500. 
  • Telegraphic transfer fees will also be charged for transferring money to your solicitor when you complete and cost around £25 to £50. 
  • If you decide not to take out buildings insurance with your new lender, you may have to pay a fee of around £30. 

Bear in mind that if you've decided to get out of your current mortgage deal early, you may have to pay an early repayment charge (ERC). This can be expensive so you need to weigh up whether this is worth it – read my article to find out more. But even if you are not getting out of your mortgage early, you may still have to pay an exit fee to your existing lender for administration costs - this could be as much as £300.

What happens if I don't do anything?

If you don't apply for another mortgage before your existing deal ends, you'll be moved onto your lender's standard variable rate (SVR). The SVR varies between lenders but is typically pegged a few percentage points above the Bank of England base rate. Because the SVR is variable, it can change at any time (SVRs don't always follow the base rate), so be aware that your monthly repayments could go up and down too.

SVRs are also not terribly competitive, so you'll end up forking out far more than necessary if you stay on your lender's SVR. The good news though is you can move off your lender's SVR at any time.

What are the best mortgages?

If you have a 40% deposit (or the equivalent amount of equity in your home), the most competitive mortgage rates are as follows:

If you have smaller deposit of 25%, the best rates are below:

  • The Post Office offers a two-year fixed rate mortgage at 1.98%, reverting to 4.49% after this time. It has a fee of £995 and the overall cost for comparison is 4.2% APR.
  • Chelsea Building Society's five-year fix is priced at 2.69%, reverting to 5.79% after five years. It has a product fee of £1,545 and a processing fee of £130 (overall cost for comparison is 4.9% APR).
  • Santander's lifetime tracker is priced at 2.49% with a £495 booking fee. The overall cost for comparison is 2.6% APR.

Those with just 10% to put down can still take advantage of some competitive deals:

  • Chelsea Building Society's two-year fix is priced at 3.54%, reverting to 5.79% after two years. It has a product fee of £1,545 and a processing fee of £130. The overall cost for comparison is 5.5% APR.
  • First Direct's five-year fix is priced at 4.39%, reverting to 3.69% after this time. It has a fee of £1,499 and the overall cost for comparison is 4.1% APR.
  • First Direct also offers a lifetime tracker at 3.99%, with a fee of £999 (overall cost for comparison is 4.1% APR).

You can compare a range of mortgages on our mortgage channel. And, if you're unsure which mortgage is right for you, contact our mortgage partner London & Country for free, independent advice on 0844 209 8725.

YOUR HOME MAY BE REPOSSESSED IF YOU DON'T KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct

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