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Published: 29/01/2019

At a glance

  • Fixed rate mortgages ‘fix’ your monthly repayments at an agreed level for the period of the mortgage deal.
  • Once the fixed rate ends you are normally moved onto the lender’s Standard Variable rate.
  • Fixed rate deals are great if you want to be certain of how much your mortgage payments will be over the period of the deal.

What are fixed rate mortgages?

Fixed rate mortgages are a popular choice with both first-time buyers and those looking for a new deal. Very simply, a fixed term mortgage guarantees that your repayments won’t change over a set period.

Generally, three-year fixed rate mortgages are seen as a good balance between protecting yourself from interest rate rises and not being ‘locked in’ for too long should rates go down in the next few years. For those who prefer a shorter term or wish to take advantage of a slightly better rate, two-year fixed rate mortgages are popular and widely available.

How do two and three-year fixed rate mortgages compare?

While the repayments on a variable rate mortgage can rise or drop from month to month, the payments on a fixed rate mortgage are… for want of a better term: fixed. No matter what interest rates do, you’ll be guaranteed to only pay the agreed amount for the term of the initial fixed-rate deal.

Moneyfacts tip

Moneyfacts tip Michelle Monck

Find out how a mortgage broker might be able to help you decide whether to fix for two or three years.

What happens when my fixed rate mortgage period ends?

When the fixed term agreement ends, you are normally automatically moved across onto the lender’s standard variable rate (SVR). Depending on the interest rates at that time, you could find your repayments going up or down, but usually the SVR will be higher than the fixed rate. If you find you prefer the security of fixed monthly payments, then it’s perfectly possible to take out a new fixed rate mortgage deal. However, you are likely to be charged with further arrangement fees.

Why choose a two or three-year fixed mortgage deal?

Many people find fixed rate mortgages to be an attractive option: the fact that your repayment is guaranteed not to change during the agreed period means that you are protected from any rises in interest rates during this time. However, the fact that falls in interest rates won’t be reflected in your monthly mortgage payments may make you feel nervous about tying yourself into a fixed rate for too long. In addition, while fixed rate mortgages provide great stability, they can be rather inflexible if your circumstances change.

It’s important to note that interest rates on fixed term mortgages will typically be higher than those being offered for variable mortgage deals. However, this is offset by the stability of knowing exactly what your mortgage repayments will be over the fixed period.

Opting for a two or three-year deal is a good compromise between protecting yourself from unexpected interest rate rises and budgeting for your monthly expenses. While there are products out there for one-year to even 10-year deals, choosing a fixed mortgage over 24 or 36 months allows you to feel protected from any nasty mortgage rate surprises, but without locking you in for the longer term.

It’s also worth noting that for a fixed rate mortgage, there are usually penalties for early repayment and restrictions on how much you can overpay.

Which is the cheapest fixed rate mortgage?

 Due to the popularity of this type of mortgage product, there is a very wide selection to choose from, with individual lenders offering a healthy range of options. Competition for your custom can be fierce, putting you in a great position to find a mortgage deal that matches your needs and budget. Generally, the longer the fixed mortgage term the higher the rate of interest. However, your loan-to-value will also heavily influence rates.

As with any fixed term mortgage deal, there is always a possibility that a drop in interest rates could see you paying more than people on mortgages that track against the Bank of England base rate. However, it’s usually the case that this type of event is signalled well in advance. If you do find yourself locked into a fixed term mortgage just as the rates drop then the cost of refinancing would probably see you paying more in fees anyway.

 To find the cheapest fixed rate mortgage deals currently available, simply click here.

Pros and cons of two and three year fixed rate mortgages

  • Protects you from unexpected rises in interest rates during the fixed period.
  • Fixed monthly payments make it easy to budget.
  • Easy to understand and offered by most lenders.
  • Excellent range of products means it’s easy to find a deal that is right for you.
  • Could be paying over the odds if interest rates fall.
  • Often the fixed interest rate is slightly higher than for variable mortgages.
  • May have penalties for early repayment or limits on overpaying.
  • Problems with being ‘locked in’ if your circumstances change.

Moneyfacts tip

Moneyfacts tip Leanne Macardle

When it comes to finding a fixed rate mortgage deal you can feel spoilt for choice, but remember to look into the details to ensure you have a good idea about penalties and restrictions.

Mortgage calculator

Our mortgage calculator helps you to see how much your mortgage might cost you each month.

Our how much can I borrow calculator gives you a range of how much a lender might consider lending you under a mortgage. This calculation is only an indication only.

Read our How much can I borrow for a mortgage guide to find out more about what can impact your potential sum of borrowing.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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At a glance

  • Fixed rate mortgages ‘fix’ your monthly repayments at an agreed level for the period of the mortgage deal.
  • Once the fixed rate ends you are normally moved onto the lender’s Standard Variable rate.
  • Fixed rate deals are great if you want to be certain of how much your mortgage payments will be over the period of the deal.

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