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Two-Year Fixed-Rate Mortgages

Discover the ins and outs of a two-year fixed-rate mortgage

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Your mortgage is likely to be your biggest financial commitment. So shopping around for the best deal is vital. MoneySuperMarket can help you compare thousands of products from a wide variety of lenders, covering the whole of the market. This way, you can be confident you’re getting the right deal.

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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.

What is a two-year fixed-rate mortgage?

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.

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Who is a two-year fixed-mortgage for?

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.

Pros and cons: why choose a two-year fixed-rate mortgage?

As with most things, a two-year fixed-rate mortgage comes with its own array of benefits and disadvantages.

Here are some of the aspects you may want to take into consideration when choosing whether this type of mortgage is the right option for you.

  • Tick

    Pros:

    • 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

  • Cross

    Cons:

    • 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

How much money can I borrow on a two-year fixed-rate mortgage?

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

Do I need a larger deposit for a two-year fixed-rate mortgage?

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.

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Can I pay off my two-year fixed-rate mortgage deal before it ends?

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).

Can I get a buy-to-let property with a two-year fixed-rate mortgage?

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.

Can I fix a mortgage for a longer period?

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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