Compare 2 year fixed rate mortgages
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Whether the Bank of England (BOE) changes the base interest rate or not, a two-year fixed rate mortgage saves you from any unexpected monthly repayment surprises from interest rate hikes.
As with anything, fixed term mortgages have some downsides, such as the lack of flexibility and early repayment fees as well as break costs if you repay your loan before the fixed period ends.
As the name suggests, this is a mortgage in which the interest rate is fixed for two years. This is one of the most common mortgages offered by UK banks and mortgage lenders. These mortgages are great for first-time buyers because knowing what your monthly repayments will be allows you to plan your finances for the next couple of years. It’s long enough to reap the benefits of a competitive rate, but short enough to give you the flexibility to change mortgages if you find that a fixed rate isn’t for you or if you foresee interest rates dropping in the future.
Usually, when your fixed term ends, your mortgage reverts to the standard variable rate (SVR) offered by your lender unless you decide to remortgage. In most cases, your lender will notify you when your fixed period is close to ending so you can make a decision, but it’s better to set a calendar reminder yourself well before the fixed rate ends so you can decide what you’re going to do.
Each month, the BOE sets the base rate, which is the interest rate set by the BOE for lending to other banks, and it is generally used as the benchmark for interest rates. This, as well as other economic factors, can have a bearing on what your lender decides to do with their mortgage rates.
If the rates go down, those with variable rate loans could see their repayments go down too; however, if rates go up, variable rate borrowers could be paying more.
A fixed rate mortgage protects borrowers against rising rates. You lock in a rate with your lender, and then for the duration of that term your rate stays the same.
Unfortunately, a side effect of this is that a fixed rate mortgage is less flexible and has extra fees compared to its variable rate cousin.
Fixed rate mortgages can come with expensive break fees if you decide to leave the loan early.
They’ll also usually be missing features like 100% offset accounts. If they allow you to make additional repayments, these will usually be capped off at 10% of your mortgage balance annually, rather than unlimited like most variable rate mortgages.
Just as the name implies, these mortgages don’t have any extra features that other mortgages have, but generally offer more affordable rates. They’re a good way to save money if you want a simple no-frills mortgage.
Having bad credit can make getting a mortgage a difficult and stressful process. Luckily, many mortgage providers offer special mortgages for those with bad credit. You may be charged a higher rate or fee with this type of mortgage to compensate for your credit risk, but it doesn’t disqualify you from getting a mortgage.
People who are self-employed or who are investors are generally unable to provide proof of income through pay slips and bank statements like most people. Instead, self-employed borrowers will have to provide form SA302, which is how you declare the amount of money you’ve earned to HMRC. This is why many lenders have special mortgages designed for those who are self-employed.
A two-year fixed rate mortgage can be compared using the same factors as a regular mortgage, but there are a few additional points to consider.
Ted and Laura are a recently married couple looking to buy their first home. Rather than spending their money on renting, they want to get a small place that will allow them to afford the monthly repayments along with their other expenses.
Ted and Laura opted for a two-year fixed mortgage.
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