Could a 3-yr mortgage be ‘just right’ for you? - Mortgages - News - Moneyfacts

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Could a 3-yr mortgage be ‘just right’ for you?

Could a 3-yr mortgage be ‘just right’ for you?

Category: Mortgages

Updated: 05/04/2016
First Published: 05/04/2016

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Deciding how long to fix your mortgage for can be tricky: on the one hand, fixing for a longer period of time means that you can benefit from the security of a competitive rate for several years (and at the moment, they are at record lows!), but on the other, it means that you could end up paying a premium instead of benefitting from a lower rate courtesy of a lower loan-to-value (LTV) after you have built up your equity. For this reason, the popularity of three-year, mid-term mortgages is growing.

Three years is 'just right'

Uncertainty in the financial world and increasing competition in the mortgage market have combined to create the perfect catalyst to the growth of three-year mortgage deals, with both lenders and borrowers proving eager to explore this option. Indeed, recent research by Moneyfacts has found that the number of three-year deals has grown by 16% in just the last two years – up from 442 in April 2014 to 524 today. In even better news for borrowers, the average rate has also dropped, falling from 3.97% two years ago to just 2.90% today. See the table below for more details.

Apr-12 Apr-13 Apr-14 Apr-15 Today
Average Three-Year Fixed Rate Mortgage 4.85% 4.17% 3.97% 3.28% 2.90%
Number of Three-Year Fixed Rate Mortgages 493 462 442 487 524
Compiled: 05.04.16

In the past, it was easy to overlook three-year deals in favour of shorter two-year terms or five-year deals for those who wanted a little extra security. But it now seems that a three-year deal is 'just right'. "Mortgage customers are faced with a conundrum," explains finance expert Charlotte Nelson. "Many want to benefit from the market's record low rates but are often wary of locking into a deal for five or more years in case their situation changes. A three-year deal could therefore be a good compromise."

Little difference

The research also found that borrowers currently have little to lose if they pick a three-year deal over the previously more favoured two-year version: for instance, the difference between average two-year fixed deal at 60% LTV and a three-year version is now only 0.22%. Based on a £200,000 mortgage over a 20-year term (on capital and interest repayment), this equates to a difference of just £21.54 a month. "Three-year fixed rates often get pushed to the wayside in favour of a two or five-year deal," added Charlotte , "but borrowers looking at mortgages today should not overlook this option as they could be missing out on some great deals".

So, what are you waiting for? If your fixed rate is coming to an end or you have a variable rate mortgage that you want to exchange for something with a little more security, check out our top three-year fixed rate deals. They offer the perfect mix of security and flexibility, so take advantage of the competitive rates available and see if you can find a deal that is just right for you.

What next?

Check out the top three-year fixed mortgages

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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