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Written by:
Alison Gibson
Ascot Mortgage Expert
Last Updated:
06.10.2023
Written by:
Alison Gibson
Ascot Mortgage Expert
Last Updated:
06.10.2023
Three Year Fixed-Rate Mortgages: A Comprehensive Guide
As a mortgage adviser with years of experience in the UK, I’m here to help you make sense of the labyrinth that is the mortgage market. Today, we will be looking at a particularly popular type of home loan – the 3-year fixed-rate mortgage. This mortgage product can be an ideal solution for certain homeowners, so let’s explore what this entails.
What is a Fixed-Rate Mortgage?
At its core, a fixed-rate mortgage is a type of home loan where the interest rate remains the same throughout a predetermined period, which in our case is three years. Regardless of market fluctuations or economic climate, your monthly payment repayments stay constant. The fixed-rate ensures you know exactly what you’ll be paying each month, providing stability and predictability, highly valuable to homeowners who budget meticulously.
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Is a Three Year Fixed-Rate Right for Me?
Deciding if a 3-year fixed-rate mortgage is the right choice for you depends on several factors. It may be an attractive option if you anticipate interest rates to rise in the short-term future, as your rate would remain locked in, unaffected by such fluctuations.
Another key consideration is your financial circumstances and future plans. A three-year fixed-rate is relatively short, making it suitable for those uncertain about their situation in the medium to long-term. Whether that uncertainty stems from potential career changes, plans to move house, or simply a desire for flexibility, this option offers you a degree of security without locking you in for too long.
The Pros and Cons of a Three Year Fixed-Rate Mortgage
Like any financial product, a 3-year fixed-rate mortgage comes with its own set of pros and cons.
Starting with the advantages, the primary benefit of a fixed-rate mortgage is the certainty it provides. Regardless of what happens in the broader economy, you can rest assured knowing your monthly payment repayments will stay the same for the next three years.
Furthermore, a three-year term allows for flexibility. Compared to longer fixed-rate periods, it provides an earlier opportunity for you to reassess your mortgage needs and explore different products without facing early payment charges or repayment charges.
On the flip side, the main drawback of a three-year fixed-rate is that if interest rates fall, you could end up paying more than necessary. You’re also likely to face early repayment fees if you wish to switch mortgages before the end of the three-year term. Lastly, after your fixed-rate term ends, you will likely be moved onto your lender’s standard variable rate, which may be higher than your fixed rate.
In conclusion, a 3-year fixed-rate mortgage can provide a beneficial balance of certainty and flexibility, but it’s essential to consider your personal circumstances and the potential for interest rate changes. The mortgage market can be complex, so getting expert advice is key to making the best decisions. If you’re considering a three-year fixed-rate mortgage and would like to discuss this in more detail, don’t hesitate to contact us at Ascot Mortgages. Our expert team is on hand to guide you through the process and help you find the best mortgage payment solution for your needs.
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FAQ
A 3-year fixed-rate mortgage essentially offers a balance between the shorter-term 2-year and the longer-term 5-year fixed-rate mortgages. The advantage is that you’re protected from potential interest rate rises for a period of three years, but the term is short enough that you’re not locked in for an extended period if rates decrease. The rate itself might be slightly higher than a 2-year fixed rate but generally lower than a 5-year rate. This type of mortgage might be suitable for those seeking stability but also some flexibility in the medium term.
You can switch to a different mortgage term before the end of the 3-year fixed-rate period, but you will likely face an early repayment charge (ERC). The ERC is typically a percentage of your outstanding mortgage and can be quite costly. However, it may still be worth considering if the potential savings from switching to a lower rate outweigh the cost of the ERC. It’s always recommended to discuss your options with a mortgage advisor before making any decisions.
At the end of the 3-year fixed-rate period, your mortgage usually reverts to the lender’s standard variable rate (SVR), which is often higher than your fixed rate. You can avoid this by remortgaging to a new deal, either with your current lender or a different one. It’s generally recommended to start looking at new deals, before your current fixed rate term is due to expire. With the majority of Lenders you can start this process up to 6 months before your fixed-rate term ends, so you can transition smoothly onto a new mortgage without spending any time on the potentially higher SVR.
Yes, you can potentially lock in a new 3-year fixed-rate mortgage when interest rates decrease. This is often referred to as ‘remortgaging’. It might be a good opportunity to save money by locking in a lower rate. However, it’s important to consider any early repayment charges on your current mortgage, as well as fees associated with the new mortgage, when determining if it’s financially beneficial to remortgage. Always seek professional advice to ensure you’re making an informed decision.
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Ascot Mortgages authorised and regulated by the Financial Conduct Authority and can be found on the FCA register (www.fca.org.uk) under reference 776062. The FCA do not regulate some forms of mortgages. The guidance and advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances but we estimate it will be £399 per mortgage account. Ascot Mortgages Ltd give you the option to pay a non-refundable fee of £879 payable with the application. If this option is taken, Ascot Mortgages Ltd will refund any procuration fee received by the lender.
Ascot Mortgages Limited is registered in England and Wales and have their registered office at 8 Webster Court, Westbrook, Warrington, WA5 8WD. The company’s registration number is 06764971.
We are a credit broker, not a lender. We work with the whole of the lending market. We may receive commissions that will vary depending on the lender, product, or other permissible factors. The nature any commissions model will be confirmed to you before you proceed.
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