What is a three year Fixed-Rate Mortgage?
A three year fixed-rate is a mortgage where the interest rate, and your monthly repayments, stay the same for three years. They offer fixed payments and protection from interest rate rises, but are slightly more expensive than variable rate mortgages.
Is a Three Year Fixed-Rate Right for Me?
These types of mortgages are best suited to people who don’t want to worry about rising interest rates. In particular, they may be right for anyone who knows they would struggle to make their mortgage repayments if they were to rise.
Just be aware, if you go for a fixed rate you will pay for the security of a fixed rate. The interest rates tend to be slightly higher than on tracker, or variable, mortgages. So, if you could afford a rise in interest rates, and are prepared to take that risk, a variable mortgage may cost you less.
The Pros and Cons of a Three Year Fixed-Rate Mortgage
- Stability. Whatever interest rates do in the rest of the market, for three years your rate, and your repayments, won’t change.
- Planning. Knowing exactly what your repayments will be for three years allows you to budget more easily.
- Potential savings. If interest rates rise you could end up paying a lot less than someone on a variable rate mortgage.
- Pricey. You’ll probably pay a slightly higher interest rate than people on a variable rate mortgage, as you’ll pay a slight premium for the security of a fixed rate.
- Falling rates won’t affect you. If interest rates fall during your three-year fix, you won’t see any benefit.
- Trapped. You’ll have to pay exit fees if you want to remortgage during the three years.