Planning around a fixed-rate mortgage deal

People with a mortgage often talk about being "on a fix".

A fixed rate is a deal for a set period, and the mortgage carries on after it ends. These notes explain how the fixed period sits inside the longer term, so you can plan ahead for when it ends, for paying off early and for moving home. They draw on the Financial Ombudsman Service and the government's Mortgage Charter.

Two different lengths

The mortgage term is how long you have to pay back the whole loan. The fixed rate is a product attached to the mortgage for a shorter period. When that period ends, the mortgage itself carries on.

The Financial Ombudsman Service says that whatever type of mortgage you have, your interest payments are likely to change over its lifetime. A fix holds the rate still for a while. It does not hold it still for the whole term.

Planning for the end of the fix

Your mortgage offer says what rate applies after the fix. In ombudsman decisions about this, the mortgage moved on to a variable rate set by the lender. In one case it was a "follow-on" rate that the borrower had not expected, and it was set out in her offer.

The ombudsman expects a lender to give reasonable notice that your payment will change because a rate product is ending. Most lenders have signed the government's Mortgage Charter. Under it, a lender can offer you a new deal up to six months before your fix ends. Six months is the most, so ask your lender how far ahead it offers. You can ask for a better like-for-like deal with the same lender until the new one starts. Rates must be finalised two weeks before it begins.

If you are up to date with payments, the Charter also lets you switch to a new deal with your lender at the end of a fix without another affordability check. That does not apply if you want to borrow more or change your term or repayment type.

Paying off early during the fix

An early repayment charge is a fee a lender may ask for if you reduce what you owe, for example by paying off a lump sum. With a fixed, capped or discounted rate, a lender may apply one during the special rate. Sometimes the charging period runs beyond it.

A charge can also apply if you switch to a different interest rate product before your current one ends. The mortgage agreement should set out when a charge will apply. Your lender should explain it before you agree to the product.

Moving home during the fix

Some people expect to take their fixed rate with them to a new home. That depends on the lender agreeing.

The Financial Ombudsman Service hears complaints from people whose lender turned down a request to move their rate to another property. They then had to take a mortgage elsewhere and were charged an early repayment charge. If a move is likely during the fix, the lender's terms on moving are worth reading first.

If payments become hard

Speak to your lender, ideally before a payment is due. The ombudsman says discussing your options with your lender has no effect on your credit file.