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).
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Two-year fixed-rate mortgage deals offer the peace of mind of knowing exactly how much your mortgage will cost you over the next 24 months. This makes them a good choice if you are on a tight budget, or you are worried about interest rates rising.
Fixing your mortgage for a shorter duration like two years can be preferable to longer term fixes, which only usually make sense if you expect to stay in the same property for the full duration of the term.
While most mortgages are portable – meaning they can move with you 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 house in a few years, a two-year fixed-rate mortgage can offer a good compromise between security and flexibility.
Yes, there are lots of deals available that let you 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 definitely 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 early on in a longer fix.
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
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
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
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 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.”
Find out what the average UK mortgage rates are today, whether rates are set to rise or fall, and what you should do if you need a mortgage right now.Learn more