Mortgage advice for first time buyers: How to manage your loan

Getting a mortgage is just the beginning. As a first time buyer, managing your home loan well over the long term is just as important as securing one in the first place.

Whether you’re looking for mortgage tips on overpaying, preparing for an interest rate change, or want advice on remortgaging, this guide covers what to expect after completion day.

How to manage your mortgage after completion

You’re probably familiar with what’s in store as a mortgage borrower during the initial term, as your broker will have taken you through it.

Once you’ve completed your property purchase, managing your mortgage becomes an ongoing responsibility. These simple habits will help you stay on top of it:

• Automate your monthly repayments to make sure you always pay on time.
• Monitor the Bank of England’s Bank Rate, which influences the interest rates lenders offer on mortgages.
• Set a reminder for your deal end date, ideally six months in advance, so you have enough time to explore your options and speak to a mortgage broker.

What happens when your initial mortgage term ends?

Your initial mortgage term is usually fixed for two, three or five years. When this ends, your lender will automatically move you onto their standard variable rate (SVR), unless you take action beforehand.

The SVR is usually higher than a fixed rate. While it offers flexibility and the option to overpay without incurring early repayment charges (ERCs), the lender can change the SVR at any time, so your monthly payments could go up unexpectedly.

When your initial term ends, you have three main options for managing your mortgage:

• Remortgage with your current lender, often called a ‘product transfer’. This allows you to lock in a new fixed rate, offering predictable monthly repayments for a set period.
• Remortgage to a new lender, which may make sense if they can offer a more competitive rate than your current lender.
• Roll onto your current lender’s SVR, which could be the best option if you plan on moving soon or want to overpay your mortgage without incurring charges.

In any case, seeking advice from a specialist mortgage broker can give you clarity and help you decide which route suits your circumstances. If you choose to remortgage, they’ll be able to search the market for the best deal, just like they did when you first took out your mortgage.

When remortgaging, it’s best to lock in a new deal before your initial term ends to transition seamlessly and avoid paying more by rolling onto the SVR. Aim to speak to your mortgage broker six months before your initial term ends so you have enough time to explore your options and secure the best deal.

How to prepare for an interest rate change

Interest rate fluctuations can feel like a lot to keep track of. Everything from the Bank Rate and government policies to global politics can cause rates to rise or fall. Lenders often predict how the cost of borrowing may change based on these factors and will pre-emptively shift rates.

When you’re on a fixed rate, interest rate changes won’t affect your monthly repayments until the fixed term ends. But if you’re remortgaging or moving onto an SVR, it’s good to understand what the impact of an interest rate rise could have on your finances. Following these steps can help you work out whether you could cover the increased cost:

• Calculate how much more your mortgage will cost each month and factor this amount into your budget.
• Review your spending to see if you can reduce expenses elsewhere, such as by switching energy providers or cancelling unused subscriptions.
• Use our mortgage comparison tool to research options, and our affordability calculators for an estimate of monthly costs.
• Speak to a specialist mortgage broker for actual figures based on the most up-to-date market conditions.

Should you overpay your mortgage?

One of the most common mortgage tips you’ll probably hear is to overpay when you can. It’s a compelling idea, as it suggests greater financial freedom sooner. With fixed-rate mortgages, most lenders allow overpayments of up to 10% each without incurring ERCs.

The benefits of overpaying your mortgage include:

• Reducing your loan-to-value, which can unlock more competitive rates when remortgaging.
• Reducing the overall amount of interest paid.
• Shortening the overall mortgage term.
• Building equity faster.

But there are also instances where it could be better not to overpay your mortgage, such as:

• If you have a Shared Ownership mortgage and extra money available, you may prefer to staircase and gain more equity in your home instead.
• You want to build emergency savings, so you have the security of a financial safety net.
• Your savings rate after tax is higher than your mortgage interest rate. In this case, you may be better off keeping the money in savings and letting it earn interest, rather than using it to overpay your mortgage.

If you’re unsure which option is right for you, seek expert advice from a mortgage broker.

Get expert help with managing your mortgage

Whether you’re remortgaging, thinking about staircasing, or seeking mortgage advice, our specialist mortgage broker panel is here to help. Get in touch to speak to a specialist and receive personalised advice tailored to your circumstances.