Our mortgage is fixed at 1.99% to 2025 – what should we do now?

In 2020, during the height of the pandemic, my now husband and I jumped up the property ladder and bought our first home.

Our house was worth £350,000 and we opted for a 5-year fixed rate of 1.99 per cent, aiming to pay it back in 20 years. We currently have £240,261.70 left to pay and repay £1,501.00 each month.

With the end date of the fixed rate approaching, we have begun to think about how this rate is going to change and the inevitable increase.

We want to get the most competitive rate when it changes and would like to know if there is an opportunity to ‘shop’ with other banks and mortgage lenders in case they can offer a better rate.

SCROLL DOWN TO FIND OUT HOW TO ASK DAVID YOUR MORTGAGE ASK

Is this something you can do? If so, when is the best time to investigate? Will you incur costs/fines if you do so? How long is the transition period when switching from one mortgage lender to another?

If not, how do we work with our current provider to ensure we get the best deal and new rate? – Via email

David Hollingworth replies: Millions of borrowers will have been in your situation and have reached or are approaching the end of their current low interest rates.

Fixed rates fell to their lowest point in recent years against a backdrop of ultra-low interest rates.

Those with a large down payment can even lock their rate below 1 percent on a flat rate for two or five years at some point.

As a result, many borrowers did exactly what you did and decided to lock in their rate for the medium term.

The rapid turnaround in interest rates since base rates began to rise in December 2021 means large numbers of homeowners will be anxiously looking at the end of their current interest rates and wondering what their best course of action will be.

Your question of whether you should shop around is one that should be answered with a resounding ‘Yes!’. When you reach the end of a deal, it makes sense to review your options to make sure you can get the very best value out of your mortgage. With rates rising as they have been, that will be all the more important.

Using a mortgage advisor will help you cover all the bases here, but make sure you are clear on what they have to offer. You will want to use an advisor who can deal with lenders from all over the market rather than a limited number of lenders.

And it is important to understand what costs there may be for the advice. Lenders pay all advisors for introducing clients to them, but some charge a brokerage fee on top of that, while others work solely with the payment from the lender.

While your mortgage is due for renewal, David Hollingworth discusses how to get the best possible interest rate.

You can start shopping up to 6 months before the end of your current deal. Most offers from lenders are valid for up to 6 months, guaranteeing a rate already now, which could potentially prevent further increases if rates continue to rise.

It’s still possible to revise the deal if rates drop slightly, so there’s little to lose by starting earlier. Any upfront fees may be lost when you start over, but in many cases, fees are not paid until completion.

Even in a more stable market, I would suggest starting the process well over 3 months before the end of the current rate. That gives time for a smooth transition to the new deal and prevents us from drifting into the standard variable rate (SVR). The SVR will typically be higher than other deals and currently often exceeds 8 percent.

By starting earlier, you can have an offer ready to complete when the current deal expires, so you can make the most of the existing rate and also avoid paying early redemption fees (ERC). An ERC can be a hefty fine, so it makes sense to check exactly when the flat rate and the ERC end.

The remortgaging process can take some time, especially if there is any complexity, but if you provide the required documents in a timely manner, a mortgage quote should be available within 2-4 weeks. There will also be some basic legal work for the new mortgage to take effect upon switching lenders.

You should consider all costs when switching, rather than focusing entirely on the rate, as fees can add to the overall cost of a deal. Lenders usually have a range of options with different rate and rate combinations, often covering basic valuation and legal work required. An advisor calculates the best total package for you.

Mortgage rates have been rising since May, putting borrowers at risk of significantly higher costs once they take out a new home loan.

They will also be able to take into account what your existing lender has to offer. Lenders are much more transparent about what they have to offer existing customers than ever. These deals can be competitive, but a broker can compare them to the best on the market to give you the assurance that you’re getting the best overall option.

Depending on the existing lender, the process could start months in advance. If the switch is on a comparable basis, there is no need for an affordability check or for any legal work.

Your advisor will help you understand the best overall deal, as well as the implications of any changes, such as a change in mortgage term. Regardless of whether the best option is with the current or new lender, they will also be able to help with the application and ensure that the transition goes smoothly.