2 year fixed rate mortgages

Finding the right two-year fixed-rate mortgage deal can be really confusing.

Should I fix my rate for longer? What extra fees are involved? What if I want to move soon?

So, let Mojo’s expert advisers compare deals to find your best two year fixed-rate mortgage.

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YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

The FCA does not regulate mortgages on commercial or investment buy-to-let properties.

What is a two-year fixed-rate mortgage?

With a two-year fixed-rate mortgage, your interest rate stays the same for the full 24 months of your deal, meaning your mortgage payments won't rise, no matter what happens to interest rates during that time. This makes them a good choice if you expect rate rises.

Most two-year fixed-rate mortgages charge fees if you repay the balance in full before the deal ends. Once the two years have passed, however, you can usually switch to a new fixed or variable-rate deal without penalty. If you do nothing when your deal period ends, your mortgage rate will usually revert to your lender’s standard variable rate (SVR).

Should I get a two-year fixed rate mortgage?

Two-year fixed-rate mortgage deals offer the peace of mind of knowing exactly how much your mortgage will cost for 24 months. This makes them a good choice if you're on a tight budget, or worried about interest rates rising.

While most mortgages are portable – meaning you can take them to a new home – this is not always straightforward, especially if you want to borrow more money. If you think you might want to move fairly soon, a two-year fixed-rate mortgage can offer a good compromise between security and flexibility.

Can I fix my mortgage for longer than 2 years?

Yes, there are deals available to fix your mortgage rate for three, five or 10 years, and sometimes even longer than that. Longer deals can help your long-term financial stability and may be a good option if you expect interest rates to go up over the next few years.

It’s worth weighing this up against the fact that you would likely have to pay a considerable amount in early repayment charges (ERCs) to leave the deal early, however, especially on a longer fix.

What happens at the end of my two year fixed-rate period?

After your two-year fixed-rate period expires, your mortgage will automatically move on to your lender’s standard variable rate (SVR). This will generally be higher than both the rate you were paying and the rate you could pay by remortgaging onto a new deal.

To avoid paying more than you need, start looking at your remortgage options - both with your existing lender and its rivals - a few months before your deal comes to an end.

“Once you’ve found a rate you’re happy with, move quickly in order to secure it. In some cases lenders are only providing a couple of hours’ notice before increasing rates, so have your documents ready and get them to your broker as soon as possible.”
Dean Wickett, Mortgage Expert at Mojo Mortgages

Should I fix my mortgage for two or five years?

How long you fix for will really come down to how much certainty you need, your current financial circumstances, and what your future plans are, both financially and in terms of home ownership.

You could consider the following when making your choice:

What’s more important, security or saving money? - If it’s security you might feel better to fix for longer, but if you do, there is more potential to lose out if interest rates fall, so perhaps not the best option if you want to ensure you always pay the minimum rate possible
How long will you stay in your home? - If you’re looking to upsize in a couple of years, then it’s probably best not to fix for a long duration, as you’ll likely need to remortgage and borrow more for a larger property. If you’re locked into a long fixed-rate period, the ERCs will make it much more expensive to switch mortgages
Remortgage fees - It’s all very well looking to remortgage every few years to ensure you always have the cheapest rate, but even if you stick to shorter fixed rate deals to prevent paying ERCs each time, there are still a range of fees that apply to remortgaging. Remortgaging very regularly can negate the benefits of switching to a cheaper rate, as you could end up spending any savings on multiple remortgage fees

Advantages of a two-year fixed-rate mortgage

Your repayments won't rise for the next two years, even if interest rates go up
Knowing how much you’ll be paying each month makes it easier to manage your finances
If interest rates do rise, you may end up paying less than you would have done on a variable-rate deal
If rates fall or you want to move house, you only have to wait two years at most to pay off your mortgage without facing ERCs

Disadvantages of a two-year fixed-rate mortgage

You’ll generally pay higher mortgage rates than variable-rate deals at the start
You’ll lose out on more competitive rates if interest rates fall during your two year fixed rate mortgage term
You’ll usually pay a higher arrangement fee
You’ll need a new deal in two years, which means more remortgage fees
If you want to switch your mortgage within two years, either to save money or move, you’ll have to pay ERCs that can often cost thousands of pounds

Two-year-fixed mortgage deals offer peace of mind that your rate will remain the same for two years, but also a degree of flexibility in that you can switch deals after this fairly short time. It’s always worth comparing prices and rates because there can be quite a big difference between lenders – especially when you factor fees in too.”

Kellie Steed, Mortgage Content Writer

Two-year fixed-rate mortgages FAQs

How much you can borrow will depend on your circumstances. Lenders have specific criteria, no matter what type of deal you opt for. Factors that impact how much you can borrow include:

How much you earn – most lenders will offer around four times your income
How much you can put down as a deposit – the bigger the better
How much you already owe – other loans and credit cards
How much you spend – for example on household bills or child maintenance

Not necessarily – fixed-rate mortgage deals are often more expensive than similar deals charging a variable rate of interest at the start. However, they offer more security, as the rate you pay will not change even if interest rates go up.

They can therefore prove cheaper in the long term if interest rates rise during the fixed-rate period. If, however, interest rates fall, you could end up paying over the odds.

Taking out any mortgage involves paying various fees. These can include:

Booking fees of up to about £250
Arrangement fees, which can range from £0 to more than £2,000
An administration fee of around £100 to £300
Legal fees of which vary depending on the property type and size
Deposit

When searching for the best two-year fixed-rate mortgage, it’s therefore important to consider the total cost including fees, not just the mortgage rate on offer. The best way to do this is by looking at the total cost over the initial deal period.

Deciding whether or not to fix and how long for is a personal decision, depending on how much certainty you need and how tight your budget is. It also depends on what you think interest rates are going to do. Fixes are usually more expensive than variable rates at the outset. However, if rates rise sharply, fixes can end up being significantly cheaper than their variable counterparts.

On the other hand, if rates fall or stay the same, then fixed mortgages tend to work out as a more expensive option. When deciding on a rate, stress test your repayments to see what would happen if the interest rate were to rise: would you still be able to comfortably make your repayments?

You’ll have to pay ERCs (early repayment charges) if you want to pay the mortgage off early – for example, to switch to a cheaper deal. These can be up to 5% of the total amount still owed on your mortgage. When you exit the mortgage, you may also have to pay an exit fee, which can be up to £300.

If you’re within the last six months of your two year fix, however, it’s possible to lock in a new deal that you will automatically transfer onto without having to pay ERCs, once your deal ends.