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A guide to three year fixed rate mortgage

Leanne Macardle

Leanne Macardle

Editor

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.

What is a three-year fixed rate mortgage?

A three-year fixed mortgage is, simply put, 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. Fixed mortgage rates can last for as little as two or as much as 10 years, but if you’re on this page, you’re clearly interested in those that last three years.

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 and disadvantages 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- or even 10-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.

There are of course disadvantages as well. For one, 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 check the fine print before committing to a deal.

Finding the best three-year fixed rate mortgage

If you've decided that a three-year fixed rate mortgage is for you, the next step is to find out which of the best three-year fixed rate mortgage deals presented on this page (or found in our wider mortgage search) is right for you.

Things to consider when making your decision are:

The Mortgage Rate

This is determined by the value of the property, as well as the size of your deposit. Generally, the more money you can put down for a deposit, the better your mortgage rate will be, since you present less of a risk to the lender. That’s why the products with the lowest loan-to-value (LTV) tend to be found at the top of the charts.

In addition, you may want to compare the deals here with those on offer in the variable rate mortgage charts, as there are some economic circumstances under which variable rates may actually be lower than fixed mortgage rates. However, if this is the case, keep in mind that variable rates can increase beyond the fixed rate in the intervening years. Whether this is an acceptable risk will depend on your specific circumstances and attitude towards risk.

Fees and other charges

Compare deals not just on rates and LTV, but also look at the fees. The three-year fixed mortgage with the lowest rate may look the most appealing, but if it comes with an expensive arrangement fee it can turn out to be costlier overall.

The representative example given for each deal enables you to see the repayments and total cost using set criteria giving you a level playing field on which to compare the costs of different products. Next to this, you’ll also want to work out how much the mortgage will cost you specifically, to make sure you can afford the monthly payments.

Note that some mortgages allow you to add your upfront fees to the mortgage balance. While this could minimise your costs at the time, it also means interest will be charged on this extra debt, likely making it more expensive in the long term.

Aside from upfront charges, it's worth seeing how much you would be charged if you have to cancel the mortgage, too, i.e. the Early Repayment Charge. Even if you never need it, it's better to find out now before it’s too late.

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 search to access a fully comprehensive list of all mortgages, based on your specific criteria. If you’ve decided a different type of mortgage is for you, you can also choose to click through to the relevant Best Buy chart for easy perusal. Take a look:

Pros and cons of 3 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.

Moneyfacts tip

Moneyfacts tip Leanne Macardle

Planning to move house in the next few years? Make sure your lender will let you move your mortgage deal with you (which is called porting a mortgage) and check what fees this could incur.

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.

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.

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