The 22-year-old held talks with Newcastle United but has decided to remain at the Liberty Stadium as the Swans prepare for life in the top flight under manager Brendan Rodgers.
Taylor admitted his relief at the new deal, having been unsettled by the speculation over his future.
He told swanseacity.net: "This has been the hardest month of my life. There has been so much written and said about me that was untrue it really hurt at times.
"It's dragged on longer than everyone expected because I've been on holiday, the chairman (Huw Jenkins) has been on holiday and the manager has been away.
"I read somewhere a few weeks back that I had been ignoring the manager's phone calls. Considering he was climbing Mount Kilimanjaro at the time, it's difficult to get a phone signal 19,000 feet up a mountain.
"One headline even said 'sell me or I will sue', which is a strange one considering I haven't given a quote to anyone until now.
"It was only last week that I got to speak to the manager face to face. I told him I wanted to stay, but why wouldn't I?
"Yes, I was flattered at Newcastle's interest and I spoke to them after Swansea gave me permission. I think most players would because they are a massive club and I was interested to see what they had to say.
"But I know I've got everything going for me here at Swansea. I've got one of the best young managers in Europe to learn from and develop; we've got a great squad that can do well in the Premier League and a style of football that I love and the envy of a lot of clubs."