to wonder what interest rates will do over next 3-5 yrs?

[noseynoonoo]

DH and I need to renew out mortgage. We are going to go for either a 3 or 5 yr fixed. DH prefers the 3 yr option but I think rates can only go up and we should go for 5 yrs. Are there any wise people out there who can help?

Can you explain to your husband that the fee involved with re-negotiation in only 3 years may well negate any potential tiny saving?

Well mortgage rates can't really go much lower. There will come a time when they will rocket. Also what alpine said.

We are not too fussed about the fee since the fee is very small compared to the difference in the interest rate. I am more concerned with whether the interest rate will have rocketed by the end of the 3 yrs.

I suppose it is possible (not really though) that banks will be told they can't add 3%+ on top of the Bank of England rate thus reducing rates - but, that is in my dreams.

If you'd asked me 2 years ago, I'd have told you that interest rates have to rise steeply to counter inflation, and inflation is definitely nearly here. But for some bizarre reason the Bank of England's creation of a gazillion pounds of funny money hasn't fed through to inflation yet. I don't know why.

Base rate is predicted to drop to 0.25% and then not rise until 2017 at the earliest based on current inflation so I wouldn't be fixing rates at the moment.

It's a gamble but I am the same as whatever and have chosen not to fix for now. We have a base rate tracker so are not at risk of rates changing on the whim of the lender, and the mortgage is not that large so we could cover a fairly big rate hike if rates did jump for some reason.

If you are near your financial limit, then I would say fix the rate as you can then budget for it and know that it won't go up in that fixed period.

Historical BoE rates

Our fixed rate came to an end recently, and after looking at this we decided to fix for 5 years. Plus, mortgage rates are always higher than the BoE rates.

Who knows if we made the right decision, but we feel happier knowing what our outgoings are going to be.

We're not at our financial limit and have a good LTV but we are also like to know our outgoings.

If you can get a 3yr tracker at a significantly lower rate than your 3 or 5yr fix then you really should consider it. The chance of the base rate moving up in the next 3yrs is very slim therefore your outgoings would be stable anyway.

Financial experts have had difficulty predicting interest rates over the past through years, it is a really inexact science. We fixed a year ago on a 5 year fix on 3.49% for the following reasons:

• I am a SAHM at the mo, hoping to be able to return to work in 2 years, so a 5 year fix gave us a bit of room. We don't have the capacity at the mo to risk an increase on a tracker or short fix.
• Continued instability in the euro zone, they didn't fix the problems 2 / 3 years ago, I bet they don't do it now.
• Whilst interest rates are one factor, others factors would be the availability of funding, whilst there may be low headline rates, banks / BS are getting fussier over who they lend to. We had to jump through a lot of hoops to get it, they really looked at affordibility.
• House prices, if you are close to a 75% / 60% LTV, if house prices fall in your area your LTV will increase and so reduce access to favourable rates.
• The link between BoE base rates and interest rates on mortgages are not as strong now, it depends on the cost of borrowing to a bank and the margin they want to charge to rebuild their balance sheets.

Its crystal ball stuff at the mo, depends on your appetite for risk. We did consider a tracker and saving the difference between that and would we would have paid, then paying off a lump sum if rates stayed low when we remortgaged but given personal circs we went for the safety of a 5 year fix.