If you’re looking for the security of a fixed rate mortgage, but you want more flexibility than a five-year mortgage, a three-year fixed rate mortgage might be right for you.

What is a three-year fixed rate mortgage?

A three-year fixed rate mortgage is a mortgage where your monthly repayments will not change for three years. After that, your mortgage interest rate will revert to the lender’s standard variable rate (SVR), which is much higher than the fixed rate.

With the Bank of England threatening to increase increase rates this year, it could make sense to get a fixed-rate mortgage (or remortgage).

The trade-off with a fixed rate mortgage is that you will be penalised if you exit your mortgage before the promotional period ends. The size of this penalty is usually a percentage of the loaned amount, so it can be tens of thousands of pounds on a larger mortgage. If you’re planning to move home in the next year or two, you might look towards a two-year fixed rate mortgage instead.

What happens after the fixed rate period ends?

After the promotional period ends, your interest rate will be moved to the lender’s SVR – which is usually 2 or 3% above your fixed rate.

For example, Yorkshire Building Society’s SVR is 4.99% – but it has three-year fixed rate deals as low as 1.63%. If you had a mortgage of £300,000 over 25 years, your monthly repayments would jump from £1,218 to £1,752 after the fixed rate period ends – a really massive increase. (And if you’re currently paying SVR, or your fixed rate period is about to end, you really should consider remortgaging!)

Three-year fixed rate mortgage FAQs

Q. Are fixed rate mortgages the best choice?

Fixed rate mortgages offer you security: you know your monthly repayments won’t change for a certain amount of time.

The trade-off is that fixed rate mortgages are usually a little more expensive than the cheapest discounted mortgage – but if the Bank of England raises the base rate, which is likely to happen over the next year, then your discounted mortgage rate could rise as well. So, you have to ask yourself: how important to you is a fixed monthly repayment?

Q. Can you get a three-year fixed rate mortgage?

Yes – there’s no particular eligibility criteria for a three-year fixed rate mortgage. As with all mortgages, the best products – the mortgages with the lowest interest rates – will only be available if you have a larger deposit.

For example, if you have a deposit of 5% (95% LTV), you might get an interest rate of 2.5% for three years. If you can increase your deposit to 10% (90% LTV), the interest rate could drop to 1.8%. For a mortgage of £300,000, that’s a saving of £4,000 in interest payments over the three-year fixed period!

Q. Can I get a shorter or longer fixed rate deal?

Yes. Currently, the UK mortgage market offers two, three, five, and 10-year fixed rate deals. The shorter the fixed rate period, the lower the promotional interest rate – and vice versa.

Now read our complete mortgage guide – or find out your max mortgage amount