Fixing for 3 years versus 5 years

stoke_bishop

I'm tempted to snaffle a 3 year fixed rate for reasons of avoiding ERC on a 5 yr rate.

In the current market however, would you go for a 3yr rate?

dunstonh

It doesnt matter what we think as we all have our own circumstances. I would expect interest rates to be higher in 3 years time than currently as the BoE is letting inflation run higher than normal due to the focus on the credit crunch. Once the credit sitution has improved, then expect interest rates to rise.

You have to decide whether you plan to move in the next 5 years or not. Remember that in a 10 year period that would be 2 lots of charges on a five year fix compared to 3 lots on a 3 year fix. Plus you have no guarantee or certainty that there will be a competitive rate in 3 (or 5) years time.

stoke_bishop

dunstonh wrote: »

It doesnt matter what we think as we all have our own circumstances. I would expect interest rates to be higher in 3 years time than currently as the BoE is letting inflation run higher than normal due to the focus on the credit crunch. Once the credit sitution has improved, then expect interest rates to rise.

You have to decide whether you plan to move in the next 5 years or not. Remember that in a 10 year period that would be 2 lots of charges on a five year fix compared to 3 lots on a 3 year fix. Plus you have no guarantee or certainty that there will be a competitive rate in 3 (or 5) years time.

THe BoE rate may rise as you say, but the LIBOR will presumably be mapping more closely to that so rates will presumably (again) be closer to the BoE rate. Net effect, perhaps not too much??

dunstonh

That is the dilema of how long to fix. You just dont know.

People who did a ten year fix 3-5 years ago are laughing all the way to the bank at the moment. Back in the mid 90s, ten year fixes ended up being very expensive. Unless you have a crystal ball there is no way to tell. Personally, I would go 5 year if you know you arent going to move as you have 5 years of certainty then.