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2 year fixed rate home loans
Future-proof your home loan repayments for two years.
Enjoy the stability of knowing your repayments won’t change for two years. This provides you with the stability of a normal fixed rate mortgage but doesn’t pin you down for such a long period of time that you get locked into an agreement with no way of taking advantage of favourable market fluctuations.
2 year fixed rate home loans are offered by most banking institutions, credit unions, and building societies in New Zealand.
What’s a two year fixed rate home loan?
A home loan fixed for two years is a short-term mortgage with a fixed interest rate for the duration of the loan. It guarantees that you’ll pay the same repayment for the full two years of the loan even if home loan floating rates rise during that time. This will allow you to budget your money wisely since you know exactly what you’ll have to pay toward the loan each billing period. Once the two years are up you can decide to select another fixed rate loan or switch to a floating rate loan if you feel that a fixed rate isn’t suited to you.
A two year fixed rate home loan is no different from a normal home loan. The difference comes in the form of the interest rate. While most home loans have variable interest rates that can fluctuate with the economy, a fixed rate loan gives you a locked-in interest rate that remains the same for the duration of the fixed term, in this case for two years. There’s also a difference in the features which typically come with a fixed rate loan. For example, fixed rate loans usually don’t allow you make additional repayments to pay off your loan faster (or they limit how much extra money you can pay during the fixed term). They usually don’t come with offset accounts either.
Types of fixed home loans available
Below are some of the types of fixed rate mortgages available for two years
Basic home loans
This type of home loan has minimal features but offers competitive rates and low fees. This is ideal for those looking for the cheapest rate without the bells and whistles of additional features.
Full-featured home loans
If you’re looking for added features like offset accounts, flexible repayments and the like, a full-featured home loan is for you. Since it has additional features, this loan usually has higher fees and sometimes higher interest rates associated with it. Be aware, though, that many fixed rate home loans don’t offer these features.
Package home loans
This type of home loan usually comes with an annual fee that must be paid but it also has rate discounts. This kind of loan may also come with additional discounts on other financial products from the individual lender.
Low doc loans
This home loan is ideal for people who don’t have evidence of their income such as investors or self-employed individuals. If you don’t have traditional paperwork documenting your income a low doc loan may be perfect for you.
Bad credit home loans
As the name states, this is a home loan that is made available to individuals who may not have the best credit history.
How to compare two year fixed mortgages
- Interest rates. This will be one of the key factors you’ll probably look at when you’re comparing home loans. Since the interest rate is what makes up your fixed repayments you’ll want to find the one that fits your budget the best. You should also look at the comparison rate which will tell you what your repayments will be with fees factored into the total.
- Offered features. You’ll also want to look at what additional features come with your two year fixed rate home loan. These extra features could be a redraw option, flexible repayment options, or offset accounts. Fixed rate loans usually don’t offer too many additional features so if you want them you’ll want to have a close look at what’s on offer. On the other hand, if you don’t want any additional features you should look for a loan without any since features usually cost additional fees.
- Fees. Loans will have different fees including application fees, settlement fees, exit fees, and annual fees. In order to save money on your loan you’ll want to compare your options to find the lowest available fees.
- Revert rates. A revert rate is a rate that your loan will revert to once your fixed term is over. If you want to stay with your loan after your fixed period ends you’ll want to make sure that the revert rate isn’t too high for your budget. Compare loans based on this rate in order to get the best deal overall.
Pros and cons of these fixed rate home loans
- A short fixed term. Since this home loan is only fixed for two years you won’t feel locked in to your loan like you would with longer term fixed rate loans. This type of short term is ideal if you’re looking to sell your property sooner rather than later or if you just don’t like the rigid structure of the longer fixed rate home loans.
- A guaranteed repayment amount. With a fixed rate home loan you’ll never be surprised by your repayment amount. Once you agree upon the fixed rate, you’ll pay that amount for the two years of the loan. You won’t have to worry about your rate fluctuating with the market or with your financial institution.
- Budget friendly home loan. Since you’ll know exactly what you have to repay toward your fixed rate home loan each billing cycle you can plan a budget accordingly. This isn’t possible with floating rate loans since you never know what you’ll be paying from one bill to the next.
- Possible lost savings. With a fixed rate home loan you’ll miss out on savings if the RBNZ drops the official cash rate or economic factors change during your two year fixed rate loan term. If this happens during your loan term there’s a chance that you’ll be paying more than those with a floating rate home loan.
- High fees. Fixed rate home loans are sometimes associated with high fees. These fees may offset any savings that your fixed rate may give you.
- Lack of extra features. These type of loans usually don’t come with additional features like additional repayments, offset accounts, or redraw options. If they do come with these features there are usually high fees or limitations put on them.
Things to consider when comparing two year fixed mortgages
Before choosing a two year fixed rate home loan you should check the current RBNZ cash rate, and what experts think may happen to it in the short and medium term. If you see that there’s a possible rate drop in the near future you may want to choose a floating rate loan over a fixed rate one. This will save you money during your loan term since you’ll be able to take advantage of the impending rate drop. If you choose a fixed rate you’ll miss out on those savings.
Two year fixed rate home loans allow you to enjoy a short term mortgage with stable repayments for the duration of the loan. Settle into your new home without worrying about fluctuating repayments in an unstable economy.
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