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> The issue with fixes is that you pay a premium for fixing longer term and you also risk interest rates being lower going forward than you fixed for. this is

> The issue with fixes is that you pay a premium for fixing longer term and you also risk interest rates being lower going forward than you fixed for. this is the essence of the interest rate swap (which is what you're actually buying when you "fix") the person on the other side of the transaction is betting that the rates will rise, and you're betting that they won't > A lot of the fixes also have early repayment charges and the longer-term fixes can have very large early repayment charges (5%+). this is the fee for exiting the swap early, which has to exist otherwise person who bought the other side would never be able to make a profit on it (and hence no-one would ever write one)

kypro 4y ago
Yes, exactly. Fixed rates are basically insurance policies. When rates are rising rapidly like they are to day longer-term fixes seem obvious, almost free money. But the majority of the time they work against you because you're betting against a market that probably knows more than you as a retail mortgage borrower. That's not to say fix deals are always bad, it really just depends on circumstances. There's no free lunch here and those suggesting everyone should be taking 10 year fixes (where they're available) are suffering from recency bias. There's now a huge risk that those taking 10 year fixes will be locked into much higher rates should they come down over the next few years, which is very possible. That's just the UK market though. I believe in the US long-term fix rates make much more sense because you can refinance without incurring fees so if rates do drop you can just refinance.