1Annual saving based on re-mortgaging £194,706.00 from the highest Big 6 Lender Standard Variable Rate at 4.49% to a five-year fixed rate of 2.49%. LTV 47.6% and lower fees (£999). Details correct as of 1st June 2022.
Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.
Simply put, a two-year fixed-rate mortgage is a loan where both your interest rate and monthly repayments stay the same for two years. Regardless of what happens in the next 24 months (e.g. a rise in the Bank of England’s base rate), your plan and expenses will remain untouched. Therefore, it could be a valuable solution if you expect interest rates to rise in the near future.
Once the two-year fixed period is over, you should generally be able to take out a new fixed-rate or variable-rate plan without being charged. If you don’t do that, you’ll be moved onto the lender’s standard variable rate (SVR). The SVR tends to be higher than a fixed rate, so you may want to consider remortgaging before the SVR kicks in.
Anyone can choose to take out a two-year fixed-rate mortgage. But it’s fair to say that it might be best suited to those people who aren’t ready to tie themselves into a long-term deal.
This is particularly true if they believe that they’ll be able to find an even better deal in two years’ time. In fact, for instance, some homeowners may expect interest rates to decrease or their house value to increase rapidly.
Repayments will stay the same for two years, giving you both certainty and stability
Knowing how much you owe per month will allow you to manage your finances more easily
Compared to other fixed options, you’re not locked in for too long and early-exit fees are more affordable
If interest rates are rising, you won’t be affected and are also likely to pay less than you would on a variable-rate deal
If interest rates decrease, you won’t be able to benefit from lower repayments while you’re fixed
At the start of your two-year fixed-rate mortgage deal, you’re likely to pay higher mortgages rates than variable-rate deals
It’s a short fixed-term option, meaning that you’ll need to look for other mortgage plans more frequently
There is no universal answer to this question, as it will depend entirely on your personal circumstances.
Whether you’re applying for a two-year fixed-rate mortgage, a longer-term plan, or a variable-rate deal, each lender will have its own specific criteria.
Some of the factors that can influence how much you’re able to borrow are:
Income – your earnings often have a significant impact on how much money you can loan. Lenders tend to offer up to about four times your annual salary
What you already owe – lenders will look at your credit score and history, including previous loans and credit cards
Spendings – how much you spend on bills, child maintenance, and other personal purchases
No, you don’t. There are lenders who allow you to take out a two-year fixed-rate mortgage with a small deposit. This could be, for instance, 5% of your property’s total value.
Bear in mind that, as always, with a larger deposit you’ll be offered more favourable mortgage rates.
Yes, if you have the funds, you’re free to pay off your two-year fixed-term mortgage before the end of the 24 months.
However, it’s likely that this will come at a cost, as you’ll have to pay a fee. This is usually known as an early redemption charge (ERC).
If you’re planning on renting the house you’ve just purchased, then you’ll need to take out a buy-to-let mortgage. And yes, two-year fixed-rate deals are available for this kind of property too.
That said, you’re generally required to pay a bigger deposit (i.e. between 25% and 40% of the building’s total value). What’s more, compared to residential mortgages, you’ll often be presented with higher interest rates.
Yes, a two-year fixed-rate mortgage isn’t the only option when it comes to fixed mortgage plans. There are plenty of options out there, including three-year, five-year, and even ten-year fixed-rate mortgages.
Compared to a two-year fixed-rate mortgage, longer deals can help you with long-term financial plans and offer you stable monthly repayments for a more substantial amount of time. This could be a good option if you’re expecting interest rates to go up over the next few years.
However, if you need to pay off your mortgage before the end of your fixed-rate period, you’re likely to face a hefty ERC. This is particularly true in the case of five- and ten-year deals.
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