3 Year Fixed Rate Mortgages
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3 year fixed rate mortgages
The Bank of England base rate has been held at 0.5% since March 2009, and many experts predict it won’t rise again until 2015 – so could a 3 year fixed rate mortgage be a good choice for you while interest rates remain low?
You would certainly be in good company – according to recent statistics from the Council of Mortgage Lenders, 88% of people who took out a mortgage in November 2013 opted for a fixed rate. So why are fixed rate mortgages such a popular option and what are the benefits and drawbacks of a 3 year fixed rate?
Advantages of a 3 year fixed rate mortgage
- A compromise between long term and short term fixed rates - Three year fixed rate mortgages offer a compromise between a variable rate or a short term deal like a 2 year fixed rate mortgage, and a longer term fix for 5 or 10 years. This could offer you the best of both worlds to some extent – on the one hand, you’ll be able to benefit from the security of a fixed rate , but you only need to commit to this for 3 years and can move on to a different mortgage deal after the term finishes. With a longer term fixed rate, on the other hand, you could find yourself facing early repayment charges (ERCs) if you wanted to leave your current deal after three years.
- Easy to understand – If you are new to home ownership, a fixed-rate mortgage is an easy concept to understand as it is based on a stable monthly repayment, like a standard bank loan of the type you may have taken out previously.
- Easy budgeting – if you are not sure what life may throw at you over the next three years, a fixed rate for this period of time could offer significant peace of mind as you know exactly how much you will need to pay each month.
Disadvantages of a 3 year fixed rate mortgage
- If the base rate were to fall further, you could stand to miss out on lower payments – if you fix your mortgage for three years and the base rate falls further, you could lose out compared to homeowners with a base rate tracker mortgage. While this may not be of prime concern to buyers during the current rock-bottom base rate and the unlikelihood of a further fall, it’s still worth considering as part of the longer term picture. Many experts predict that interest rates will start to rise in 2015, so a three year fixed rate could buy you some extra time to benefit from the current record low rate.
- Penalty charges if you want to leave the deal before 3 years are up – Most mortgage providers will charge you a penalty - known as an Early Repayment Charge (ERC) - if you want to move to a different mortgage deal before the end of the fixed term. For example, if you take out a fixed rate mortgage, repaying the loan early could involve a percentage of the loan amount being charged as a fee, on top of the amount you owe.
If you are searching for a suitable 3 year fixed rate mortgage, you may wish to see our mortgage comparisons table for information on the various offers available – you can instantly search and compare 5,000 mortgage deals to help you find the right one for you.