Two year fixed-rate mortgage

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What is a two-year fixed-rate mortgage?

Two year fixed-rate mortgages offer a fixed interest rate for a period of two years, meaning that your mortgage repayments will be set at a certain agreed-upon amount at the start and won’t change for the two year set period. Even if interest rates change in this time your monthly payments won’t be affected.

A main alternative to a fixed-rate is a standard variable rate mortgage. Monthly payments on this type of mortgage can change as the lender can alter their interest rate at any time, usually in accordance with any Bank of England base rate changes.

Therefore, fixed-rate mortgages provide buyers the security and peace of mind in knowing exactly how much their monthly payments are going to be for the foreseeable future, which is especially beneficial for first time buyers.

What happens at the end of the two year fixed term?

Once your fixed-rate term is up your lender will switch you automatically on to their standard variable rate (SVR). What does this mean for your monthly payments? By being instantly switched to a variable rate your monthly payments will most likely increase to the new rate but could potentially drop, although this is more unlikely the longer you have been in a fixed-term mortgage.

3-6 months prior to the end of your fixed-term is when you will want to look for another mortgage offer or new deal, so use this time to compare lenders and other offers from your current supplier.

What are the advantages of a two year fixed-rate mortgage?

By having a fixed monthly payment plan for a two-year period it is much easier for home buyers to budget accordingly and better plan for the future when their fixed-term comes to an end.

Even if the Bank of England increases the base rate or lenders change their interest rates, you won’t have to pay any more than your fixed rate each month, meaning you won’t get stung by any price rises when you least expect it.

What are the disadvantages of a two year fixed-rate mortgage?

Just as interest rates can rise and the Bank of England can increase the base rate, so too can rates drop. If this happens you unfortunately won’t see the benefit of lower interest rates, as you will still be paying the same monthly amount until the end of your fixed term. The chance of this happening could increase if you choose a longer fixed-rate mortgage.

A fixed-rate buys you security should interest rates rise but taking the risk of a tracker or standard variable mortgage can pay off if interest rates drop. For example, if you were to have a two year fixed-rate mortgage, fixed at 2.5%, in the event of your lender’s standard variable rate dropping to 1.5%, you would be paying a whole 1% extra in interest.

How do I choose the right two year fixed-rate mortgage?

Always check the loan to value (LTV) on offer from each lender. This is the amount of your property’s value that you are allowed to borrow. As the LTV gets lower, the better the rates are in general.

Naturally, you may want to look for a mortgage with the lowest initial rate for the two year period, but you should also take into account the lender’s fees and charges; some will make you pay an upfront charge whilst others will let you add that charge to your monthly payments. Our partners at Mojo can advise you on this when you apply, helping you to find the best deal for you overall. Although there can be the option to add fees and some charges to your mortgage, this can work out more expensive in the long run as you will have to pay interest on the charge if you include them in your monthly payments.

Compare two year fixed-rate mortgages

If you think that a two-year fixed-rate mortgage may be right for you, sign up with Quote Goat’s fee-free mortgage broker to quickly and easily compare mortgages across all UK lenders as well as checking your eligibility. To get started, click the compare mortgages button on this page.

Written By Michael Foote, Insurance and Finance Expert

Michael Foote is the founder of Quote Goat and has over 13 years experience working in the finance, insurance and currency sectors. Since launching Quote Goat he has appeared on TV as well as many of the largest online publications including Forbes, The Telegraph and The Metro. Prior to Quote Goat, he worked in finance in the city for a number of firms including HSBC.
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