Understanding A 3-Year Fixed-Rate Mortgage
A three-year fixed-rate mortgage enables a borrower to lock in their interest rate for three years. This means that even if there is a rise or fall in market interest rates during this period, your interest rate will remain the same until the end of the three-year term.
Among the popular fixed-rate periods available in the market, three years is a comfortable choice for many. Compared with the shorter one-year option, three years provides you with an extended period of protection from changing market conditions. At the same time, it is shorter than the five-year option, thus offering a more affordable initial cost.
Does My Lender Have The Cheapest 3-year Fixed Rate?
For comparison purposes, the table below shows the lowest three-year fixed interest rate and comparison rate currently available in the market:
|Fixed Loan Term||Interest Rate||Comparison Rate*||Contact Us|
|3 years fixed||5.99%||7.59%||Apply Now|
Unlike variable rates, fixed rates are changed by lenders almost weekly. So, it is important to keep yourself updated and shop around for the best deal.
Different Lenders Offer Different Rates
Banks provide cheaper rates than specialist lenders, so if you can qualify for a home loan with a bank, the above rate is the best you can find.
Lenders try to price their rates so that they will make money over the term of your loan. With fixed rates, that means they have to estimate the likely future rate increases or rate cuts. The great news is that every lender has a different opinion.
The end result is that one bank may offer reduced fixed rates because they believe rates will fall, while another may have higher rates, because they expect market rates to be higher over the next three years.
Shopping around will save you plenty of money.
Benefits of A 3-Year Fixed-Rate Period
Below are the major benefits you receive from a three-year fixed-rate period for your home loan:
- Offers competitive rates compared with variable rate and longer fixed-rate options
- A more affordable initial cost, compared with a longer fixed-rate period
- Provides an extended period of protection from changing market conditions, compared with shorter fixed-rate periods
- Helps in budgeting, as your repayment amounts will not change for three years.
Bank Vs Borrower: Who Does A Fixed Rate Favour?
When you fix your interest rate you are in effect betting against the bank. The bank is estimating rates to take one direction and you are accepting their prediction and locking the rate in, usually to protect yourself from the Reserve Bank increasing the cash rate. So, a fixed rate favours whoever is correct about the future direction of rates.
You need to be cautious about fixing your rate for a longer term during times of market hysteria. Banks tend to increase their fixed rates rapidly at the first sign of bad economic news. They are trying to make more money off of the market panic.
The best time to fix is when the market is steady, as three-year rates tend to be lower at those times.
What Happens After The Fixed Rate Period Ends?
After three years your fixed rate will expire and your loan will revert to the prevailing variable interest rate. Generally, the bank will mail you a letter a month before the expiry of your fixed rate and offer you the chance to re-lock your rate for another three years.
This is a good time to contact your mortgage broker to make sure that the rate you are being offered is competitive.
If you don’t re-fix the rate, then the bank will usually put you on the Bank Standard Variable rate (BSV) and hope that you don’t notice.
Talk to your mortgage broker and they will negotiate with the lender on your behalf to make sure that they give you a discount below the BSV.
When To Choose A 3-year Term
Three years is usually the shortest amount of time that we recommend our customers fix a loan. Fixed terms of two years or one year have very little benefit because they’re too short.
Most people that have a three-year fixed rate expect short-term volatility in the financial markets.
How Do I Apply For A 3-Year Fixed-Rate Loan?
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will contact you to discuss your options.