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A two-year fixed rate mortgage is a mortgage that will secure your monthly repayments at the same level for two years, protecting you against potential interest rate rises.
Once the two year period expires, you will revert to your lender’s standard variable rate (SVR) unless you choose to take out a new fixed rate mortgage.
Two year fixed rate mortgages are popular with borrowers, as taking out a fixed mortgage means that your monthly repayments are fixed for a two year period.
During that period even if interest rates increase, your monthly repayments will remain the same.
Two year fixed rates provide flexibility as if rates drop, you aren’t tied in to a long term deal, such as a five year fixed rate mortgage. A two year fixed rate might be a good option if your circumstances are likely to change in the medium term, as fixed rate mortgages usually have an early repayment charge (ERC) attached to them.
Early repayment charges can make it extremely expensive to sell your home and repay the mortgage within the fixed term.
If there’s a possibility that your circumstances could change, fixing the term for only two years can be helpful and provide a level of short-term security of knowing how much you have to pay each month, without the commitment of a longer fixed term.
Two years is the shortest term that you can typically fix your mortgage for, so if you're looking to guarantee your monthly repayments for a longer period, then a 3 year or 5 year fixed rate mortgage may be preferable.
Two year fixed rate mortgages often come with a higher arrangement fee than tracker mortgages. When you take out a new mortgage deal, there are fees associated with the product and these can add significant costs to your mortgage payments. With a short term mortgage deal, you’re likely to take out a new mortgage sooner than if you opt for a long term fixed rate, which will incur further fees.
A two year fixed rate mortgage may be right for you if you’d like the benefit of knowing how much you need to pay monthly, but don’t want to tie yourself in to a longer term mortgage. For example, if you think that you may wish to move within the next few years, fixing your mortgage for two years can be a good option.
The knowledge of how much you will pay monthly can help with budgeting and increasingly, long term fixed rate mortgages are in demand. If you’d prefer to have the security of knowing your mortgage rates for a longer period of time than two years, you may be able to choose a five year fixed rate mortgage or in some circumstances, a ten year fixed rate option. The interest rates on longer fixed terms will typically be higher than a 2 year fixed rate, as lenders will charge more for the benefit of longer term security.
After your two year fixed rate period expires, your mortgage will automatically move onto your lender’s standard variable rate (SVR). It’s likely that this rate will be higher than the fixed rate, so you may wish to look at other options to reduce your interest rate.
You can remortgage your property which will allow you to switch lenders, or you can choose another mortgage product with your existing lender. Either way, explore your options a couple of months before your fixed term expires, to ensure you don’t end up paying over the odds for your mortgage.
If you decide that the best option to meet your requirements is a two-year fixed term mortgage, there are a number of things to consider to get the best rate possible.
As with all mortgage borrowing, you’ll be able to access the best interest rates available from lenders if you have a significant amount of money to provide as a deposit. The larger the deposit, the less risk you pose to lenders and so you’re likely to be offered a lower interest rate. The best rates are usually available for buyers with a deposit in excess of 40% of the purchase price.
When reviewing the available options, be careful to look at the arrangement fees for each mortgage offer. It might be tempting to automatically go for the lowest rate, however, the lowest interest rate offers may have high fees attached to them. High arrangement fees can negate the benefit of a low interest rate once you take all of the costs into consideration. So be sure to calculate the full cost of the mortgage over the term, rather than simply looking at the monthly repayments. This way, you can get an accurate picture of the best two year fixed rate mortgage deal when comparing options.
You can find out how much you can borrow and look for the best 2 year fixed rate mortgage available using our fixed rate mortgage calculator here.