In uncertain financial times people develop a keen desire to protect their long term interests.

Although interest rates are currently at an all time low and short term fixed rate mortgage offers below 3.5% are widely available, there is growing concern over the future highs to which interest rates could climb in the coming years, making long term mortgages more attractive.

Fixing a mortgage now for 2 years at a rate of 3.19% (Alliance & Leicester as at 15th June 09) may seem like an attractive prospect if the previous rate was above 5% and could save some people thousands of pounds per year but if rates jump during the 2 years it could be quite a ‘rate shock’.

The gamble is whether or not rates will climb and if they do, by how much?

Using a figure of £100,000 on a 5% interest only mortgage the monthly payment is £416.66

(£100,000 x 5%) / 12 = £416.66

At 3.19% – (£100,000 x 3.19%) / 12 = £265.83

The difference is £150.83 per month x 12 x 2 = £3619.92 saved over 2 years.

If the mortgage is £200,000 the saving would be £7239.84

If fixed rates around 5% are available in 2 years time this will have been like a 2 year breather and saved thousands.

But if rates climb to say 7% the rate shock will be:

(£100,000 x 7%) / 12 = £583.33 – £265.83 = £317.50 jump in monthly payments.

Borrowers will have to stay informed and prepared.

The alternative is to go for a long term mortgage offer and fix the mortgage for as long as possible to ‘ride out the storm’.

There are currently a number of 5 year and 10 year fixed rate mortgage offers that may be enticing to borrowers coming out of 5%+ deals and which still represent a monthly saving.

Figures are based on a £100,000 interest only mortgage for ease of calculation.

To find out the cost of a specific term repayment mortgage at the above rates use our mortgage calculator.

Recent data suggests fixed rate mortgages are already on their way up and general fears over inflation are likely to see many people facing the dilemma of whether to fix their mortgage for a long term or take a gamble and potentially save thousands.