One of the most common questions I see in public forums, even more so with increasing interest rates, is “how long should I fix my mortgage for?”

You are not going to find the answer you want here!

There are three things inherently wrong with this question to strangers on the internet.

1/. The question itself implies that there is only one ideal length of period to fix for. ie. 1 year, 2 years etc. In reality, you can split your mortgage up into many different loan timeframes.

2/. The question also implies that whoever you are asking knows the unknowable. Future interest rates. We can all make best guesses. But that’s all they are. Guesses. Even the so called ‘experts’ are guessing. Literally no one knows what the interest rates will be in 1 or 2 years. You don’t have to look too far to see how often and how wrong experts have been in the past

3/. No one knows your specific set of circumstances. Unless you seek personalized advice with a deep dive into your life, goals and finances, then no one else has the right answer for you. General advice is general and not applicable to you.

You are better off thinking about your own situation than you are trying to receive generalized advice. No matter how well intentioned the advice is.

No one can give you the crystal ball answer you crave. I would love to be able to tell you what the best interest rate will be for the next year, 2 years, and so on. But you can’t get that certainty. What you can get certainty from is making a decision based on what is best for you and your family, not based on guesses. Unknowns.

Questions to consider when fixing mortgage

• Is there any chance you may want to sell house in the next few years?

  If so, then you may not want to fix for longer than that period of time you are thinking of. Otherwise you may be subject to mortgage break fees.

• When are other mortgage payments due to renew?

  Many people have their mortgage split up into more than one loan. If that is you, you may want them coming off term at different times so you don’t run the risk of entering a new market environment with high interest rates across multiple loans.

• How certain is your future income?

  Hard to answer sometimes, but if this is a concern, then you may want more certainty from mortgage interest rates by fixing for longer periods. Likewise if there is anything else that may reduce income such as starting a family.

  Conversely, if you are expecting pay increases or bonuses or an inheritance in the future, then you may want the flexibility of a loan that allows you to commit as much money as you want towards the mortgage. If you have too much of your loans on fixed mortgages and for too long, you may be limited to how much extra you can repay on your mortgage.

• What is your tolerance for risk?

  Some people are quite simply more risk averse than others. Even the same persons tolerance for risk can change over time. When we didn’t have kids for example, we would be far more willing to take the risk of locking in lower short term mortgages in a rising interest rate environment, but with kids we are far more likely to fix for longer term now. Even if it turns out to be a bad decision, it is the best decision we can make at the time.

• How large is your loan and how much breathing room do you have?

  What I mean here is that if you are paying off your mortgage quite comfortably and have the capacity to pay more on the mortgage if you wanted or to reduce your expenses if needed, then you are impacted much less by an increase in interest rates than someone who is finding things very tight as it is. The more space you have between your mortgage repayments and your savings, the more capacity you have to take on risk by locking in mortgages for shorter periods should you desire. If you are basically living paycheck to paycheck you probably won’t want to take on the risk to find out how much higher interest rates could go.

No one can give you the answer you desire if you are seeking the best future interest rates. It’s unknown. The sooner you can realise this the better. Then you can spend some more time considering your situation and answering some of the questions detailed above.

Then you will likely conclude that there is no one best fixed period. But more likely multiple loan structures. There is absolutely nothing wrong with splitting up your mortgage into multiple loans. Some one year, some two year, some three year, some four year, some five year, and some floating. Or whatever combination you desire.

Yes, you won’t get the very best interest rate across your whole loan, but you also won’t get the worst. Plus you may get the certainty of repayments that you need. Loans also coming off term at different times (I.e one year apart) is also a smart way to diversify risk so that your whole loan is not reentering the interest rate market at the same time.

For if you try to guess the direction of interest rates and get it wrong and can’t afford to get it wrong, you will not be in a good place.

Making the uncertain as certain as possible in a way that fits your circumstances is the smarter way to go.

There is a free downloadable calculator you can use that may help with this decision here.

The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here