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A guide to three year fixed rate mortgage

At a glance

  • Your monthly repayments will stay the same for three years, even if the Bank of England base rate rises.
  • The cheapest three-year fixed rate mortgage you find may actually be one with a higher initial rate than the product with simply the lowest rate in the sector. This is because it can also depend on the fees attached to the deal, and you should also consider the reverting rate once the initial period is over. Take a look at our three-year fixed rate mortgage calculators below to help find the best option for you.
  • The interest rates for three-year fixed mortgages are usually higher than deals with a two-year fixed term, but lower than fixed rate mortgages with longer terms.
  • Make sure to compare all fees attached to the product, as well as the rates, to find the best three-year fixed mortgage.

Three year mortgages explained

A three-year fixed mortgage is a mortgage that keeps the interest rate fixed for the first three years that you have it, meaning you can know the exact amount you’re going to need to repay every single month until the deal ends. After the initial fixed rate period of three years ends, your lender will automatically transfer you to their revert rate, which may be a standard variable rate (SVR) or other managed interest rate, which will tend to be much higher. This is why most borrowers will want to make sure they remortgage to a new fixed (or discounted variable) rate deal when the old one ends, to avoid seeing a spike in their repayments.

Who is a three year fixed mortgage for?

Three-year mortgages are most suitable to people who would find it hard to stretch their budget should their lender increase the monthly mortgage repayments in the next three years. The table above allows you to easily see how big a deposit/equity you will need for each mortgage, while the details tell you whether the product is for home buyers, remortgagors or both.

As with any mortgage application, you’ll want to make sure that your credit rating is as good as it can be – this is the main thing lenders will look at when deciding if you are eligible for their product, alongside your income and employment status. Keep in mind as well that if you apply for a mortgage and get rejected, your credit rating will likely be negatively affected, so make sure you have all your ducks in a row before you submit an application.

Advantages of a three year fixed mortgage

The main advantage of a three-year fixed rate mortgage is that it can provide you with a longer period of repayment security than a two-year deal. Additionally, it means you do not need to search for a new mortgage as quickly and pay any fees associated with a new mortgage again after just two years. Also, in contrast to a five year or even a ten year mortgage, you would still be able to reassess your mortgage after three years, at which point the market might have changed enough that it makes sense to remortgage.

Disadvantages of a three year fixed mortgage

If mortgage rates drop within the following three years, you could end up paying over the odds. However, even if this happens and remortgaging early would make a substantial difference, you usually have the option to switch earlier – on payment of a fee. The same fee tends to apply if you choose to repay your mortgage early, with the cost typically being higher the earlier you try to leave the deal, which is why it might be wise to keep these charges in mind when deciding which mortgage to choose.

Another potential disadvantage, depending on the deal you find, is that fixed rate mortgages tend to come with higher fees than variable rate products. Fixing for three years might also be unsuitable for those who are planning to move in the next few years, as not all mortgages will allow you to take the deal with you when you move, and those that do may charge hefty fees for the privilege – even more reason to compare mortgages before committing to a deal.

Alternatives to a three year fixed mortgage?

If you can't find a product that's right for you, don't worry – try our quick and easy mortgage comparison to access a fully comprehensive list of all mortgages, based on your criteria.

Pros and cons of three year fixed rate mortgages

  • Longer repayment security. You'll be able to budget reliably, for longer, knowing that your mortgage repayments won't change for three years.
  • More competitive interest rates. Although the rates are not as low as two-year fixed rate mortgages, three-year fixed rate mortgages offer better interest rates than mortgages with a five-year fixed rate.
  • Remortgage less often. You won't have to look for new mortgage deals as often as you would with a shorter-term mortgage.
  • Higher arrangement fees. Fixed mortgages tend to come with higher fees than variable rate mortgages.
  • No benefit from interest rates reductions. If the Bank of England base rate drops during your fixed term, your rate will remain the same and you therefore will not benefit from any subsequent drop in rates.

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