What To Do If Your Fixed Rate Mortgage Is Up For Renewal Soon

Mortgage rates have climbed so much over the past few years, and it’s catching a lot of people out. Our fixed rate mortgage isn’t coming to an end until February 2025, but I am dreading the point we have to renewal as our rate was about 1.8% when we got it. Currently mortgage rates are around 5.7% (at the point of writing this post), so quite a difference for us and many people.

The Bank of England set a base rase for the UK and this can influence how much interest you earn from savings, and how much you’ll be charged when borrowing money. So the interest you pay on any type of credit is likely to go up, and you’ll notice it more on larger things like a mortgage.

If your fixed rate mortgage deal is ending soon and you’re worried about the interest rates here are some things to consider.

What happens when interest rates rise?

Lenders don’t have to follow Bank of England interest rate decisions, but they play a big part.

When you take out a mortgage interest rates will play a part. If you have a fixed rate mortgage it will set an interest rate for a fixed period. For example we fixed 1.8% for 5 years. But if the rate is higher you may want to lock it in for less time in the hope it will change.

If you opt for a variable mortgage the interest charger will change each month meaning your payment will vary.

Have a financial plan in place for when your fixed rate mortgage ends

The base rate has increased quite a lot and for anyone who got a mortgage more than 2 years ago chances are rates are higher. Rather than burying your head in the sand and thinking you’ll worry about it when your fixed rate ends, have a plan.

You’ll likely need to budget for higher monthly costs if you’re remortgaging to a new fixed rate, or moving to a variable rate mortgage. Work out how much more you’d need to pay monthly if your interest rose to around 5%. This way you can look at your budget and work out how you’d afford the changes.

If our rate moves to 5% it would cost us about £500 more a month. I looked at our current budget and worked out a new plan based on that scenario. It does mean we’d save a bit less and have to sacrifice a few things, but planning now means I’m covered if it becomes a reality. If I only looked at my budget a few months before the rate came into affect chances are I’d panic.

You can use this mortgage calculator to work out what your new monthly payment would be based on a higher interest rate, what you’d owe when you remortgaged, and how long you had left on your term.

Six tips for managing an interest rate rise on your mortgage

1.Work out how the fixed rate mortgage change would affect you

Following the information above make sure you know how any changes would affect you.

2. See if you can save to make an overpayment

If you’re able to start putting a little money aside to save towards your repayments do so. If your interest rate is currently low chances are it will be more beneficial to save that money in a high interest saver and pay it off before you remortgage. This way when you’re applying for a new mortgage you’ll need to borrow less. But make sure to check your mortgage terms and conditions on the maximum amount of overpayments you can make.

3. Work out what you can afford

If you’ve followed step one you’ll know if you can budget for an increased hike. If it’s going to be a struggle consider that as far before your rate ends as possible. Start by seeing if you can increase your income by either getting a new job or promotion or increasing your hours. Also look into ways you can cut back on your current budget.

Even if your rate doesn’t go up much you’re making positive changes.

4. Build up your credit score before your fixed rate mortgage ends

Your credit score can directly impact the deals that lenders will offer you. If you increase your score then you may get a better deal and end up paying less interest.

5. If you’re worried speak to your lender or an advisor

Take steps as early as you can if you’re worried about being able to afford your mortgage when renewing your rate. You can also speak to a debt advisor if you’ve missed any mortgage payments to get some free advice.

Don’t suffer in silence.

6. Make sure you’re on the best deal when your fixed rate mortgage ends

Much like insurance policies, never feel like you have to auto-renew your mortgage with the same provider.

Shop around, ideally with the help of a mortgage advisor, to ensure you’re getting the best rate. You can usually get a deal secured a few months before your current rate ends, so don’t leave it too late.

You may have to pay some fees to get a mortgage with a new provider, but if the savings are high enough it may be worth it.

Have you got a fixed rate mortgage that you’ve renewed recently?