Last updated: 23/07/2020 | Estimated Reading Time: 3 minutes
Two year fixed rate mortgages
Many people are now choosing to take out mortgages that offer fixed interest rates for a predetermined period of time. These types of mortgages offer people protection from rising interest rates by pinning them to a certain amount. In times when interest rates are expected to rise, these plans can represent a good way to save money.
One of the biggest advantages to these types of plan is the fact that they allow you to plan ahead and manage your budget appropriately to stay on top of your mortgage repayments. This is because these mortgages aren't liable to change like other plans such as standard variable deals. Many borrowers are attracted to these plans because of the financial security that they offer.
In This Guide:
Benefits of a two year fixed rate mortgage
One of the main reasons that people choose two year fixed rate mortgages is because they allow you to set the rate of interest that you pay on your loan. This allows you to plan out your financial situation quite far in advance and prevents you from getting caught out by sudden rises in interest.
If you take out a standard variable rate mortgage you can often get a nasty surprise when your next repayment comes round, if interest rates have risen since the last one. It is really important to make sure you can make your mortgage repayments, otherwise you could end up being penalised and your credit score could be damaged. This means that in the future it could be harder for you to take out a personal loan or mortgage and if you do then you may be charged higher interest rates. If you end up taking out a two year fixed rate mortgage you won't be at as much of a risk of this happening to you.
Disadvantages of a two year fixed rate mortgage
Two year fixed rate mortgages can seem like a great deal and generally speaking they are, however there are some things that you should be aware of before signing up to one of these plans.
One of the main things that people do not realise when they take out a fixed rate mortgage is the fact that you can't simply cancel the plan and walk away whenever you'd like. Whilst you may be allowed to leave, you will often be subject to what is referred to as an early redemption penalty. These charges can often be quite expensive and may even outweigh the benefits of taking out the deal in the first place.
Another thing to consider when taking out one of these mortgage deals is the fact that although they protect you from interest rates rising, which will save you money, they also prevent you from benefiting from any fall in interest rates that may occur. This means that it is important to take a close look at what people are expecting the markets to do in the time over which your rates will be fixed. Nobody can know for certain what interest rates are going to do in the future and lenders will have spent a lot of time looking into it so that they don't lose out too much. In spite of this, many people still think that these mortgages are worth it due to the security that they can offer you.