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2 year fixed rate mortgages

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What is a two-year fixed-rate mortgage?

With a two-year fixed-rate mortgage, your mortgage rate and monthly repayments stay the same for 24 months, no matter what happens to interest rates during that time. This makes them a good choice if you expect interest rates to go up over the next two years.

Most two-year fixed-rate mortgages impose fees if you pay off the balance in full within the two-year deal period. But once the two-year period expires, you can usually switch to a new fixed-rate or variable-rate mortgage deal without penalty. 

If you do nothing, your mortgage rate will usually revert to your lender’s standard variable rate (SVR).

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Why choose a two-year fixed-rate mortgage?

Two-year fixed-rate mortgages offer the peace of mind of knowing exactly how much your mortgage will cost you over the next two years. This makes them a particularly good choice if you are on a tight budget or you are worried about interest rates going up in the next couple of years.

Longer-term fixed-rate mortgages - lasting five or even 10 years - are available. However, the rates on such deals are often higher than on two-year fixes. Fixing your mortgage for a long time is also only sensible if you expect to stay in the same property for at least the same period, mainly because you usually have to pay early repayment charges (ERCs) to escape mortgages of this kind before the agreed end date. 

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 a much larger amount, for example. So 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. 

Benefits of a two-year fixed-rate mortgage

  • Peace of mind - you know your mortgage repayments will remain the same for the next two years, even if interest rates go up

  • Better budgeting - knowing how much you’ll be paying your mortgage lender each month makes it easier to manage your finances

  • Potential savings - if interest rates do increase, you may end up paying less than you would on a variable-rate deal

  • Flexibility - if interest rates go down, or you want to sell up or move house, you only have to wait two years at most to pay off your mortgage without paying ERCs

Downsides of a two-year fixed-rate mortgage

  • Higher rates - fixed-rate mortgages generally have higher mortgage rates than variable-rate deals at the start; you’ll also lose out if interest rates fall

  • Higher fees - two-year fixed-rate mortgages often come with a higher arrangement fee than tracker mortgages

  • Shorter term - fixing your mortgage for two years generally means you’ll need a new deal in a couple of years, which means paying more fees and could mean your repayments jump if interest rates have risen

  • ERCs - if you want to switch your mortgage within two years, either to save money or because you’re selling your home, you’ll face ERCs that can often cost thousands of pounds 

Can I fix my mortgage for a longer period?

Yes, there are lots of deals available that let you fix your mortgage rate for three, five, or even 10 years. These longer deals can help with long-term financial planning and can also be a good option if you expect interest rates to go up over the next few years. 

However, you’ll usually face hefty ERCs if you need to pay off the mortgage before the fixed-rate period ends, especially if your plans change early on in a five or 10-year deal.

What happens at the end of my 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 on to 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. 

Claire Flynn - Senior Mortgages Editor at Uswitch
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Two-year-fixed mortgage deals are some of the most popular on the market. 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”

Claire Flynn

2 year fixed rate mortgages FAQs

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