Expecting to move in five years; how to lock mortgage rates?
You can't transfer mortgages when you purchase a new property. You can purchase a new property now, or you can refinance your current property now and leverage yourself as far as possible while rates are low. The higher rates you are worried about may not be as bad as you think. With higher interest rates, that may put downward pressure on housing prices, or when rates do rise, it may simply move from historic lows to relative lows. I had a mortgage at 4.25% that I never bothered refinancing even though rates went much lower because the savings in interest paid (minus my tax deduction for mortgage interest) didn't amount to more than the cost of refinancing. If rates go back up to 5%, that will still be very affordable. First consider the basic case of what you are asking: you expect to have a future obligation to pay interest, and you are concerned that the rate when you pay it, will be higher than the rate today. In the simplest case, you could theoretically hedge that risk by buying an asset which pays the market interest rate. As the interest rate rises, increasing your costs, your return on this asset would also increase. This would minimize your exposure to interest rate fluctuations. There are of course two problems with this simplified solution:  (1) The reason you expect to pay interest, is because you need/want to take on debt to purchase your house. To fully offset this risk by putting all your money in an asset which bears the market interest rate, would effectively be the same as just buying your house in cash. (2) The timing of the future outflow is a bit unique: you will be locking in a rate, in 5 years, which will determine the payments for the 5 years after that. So unless you own this interest-paying asset for that whole future duration, you won't immediately benefit. You also won't need / want to buy that asset today, because the rates from today to 2022 are largely irrelevant to you - you want something that directly goes against the prevailing mortgage interest rate in 2022 precisely. So in your specific case, you could in theory consider the following solution: You could short a coupon bond, likely one with a 10 year maturity date from today. As interest rates rise, the value of the coupon bond [for it's remaining life of 5 years], which has an implied interest rate set today, will drop. Because you will have shorted an asset dropping in value, you will have a gain. You could then close your short position when you buy your house in 5 years. In theory, your gain at that moment in time, would equal the present value of the rate differential between today's low mortgage rates and tomorrow's high interest rates. There are different ways mechanically to achieve what I mention above (such as buying forward derivative contracts based on interest rates, etc.), but all methods will have a few important caveats: (1) These will not be perfect hedges against your mortgage rates, unless the product directly relates to mortgage rates. General interest rates will only be a proxy for mortgage rates. (2) There is additional risk in taking this type of position. Taking a short position / trading on a margin requires you to make ongoing payments to the broker in the event that your position loses money. Theoretically those losses would be offset by inherent gains in the future, if mortgage rates stay low / go lower, but that offset isn't in your plan for 5 years. (3) 5 years may be too long of a timeline for you to accurately time the maturity of your 'hedge' position. If you end up moving in 7 years, then changes in rates between 2022-2024 might mean you lose on both your 'hedge' position and your mortgage rates. (4) Taking on a position like this will tie up your capital - either because you are directly buying an asset you believe will offset growing interest rates, or because you are taking on a margin account for a short position (preventing you from using a margin account for other investments, to the extent you 'max out' your margin limit). I doubt any of these solutions will be desirable to an individual looking to mitigate interest rate risk, because of the additional risks it creates, but it may help you see this idea in another light. If interest rates have gone up, don't sell when you move. Refinance to lock in a low rate and rent out your current house when you move. Let the rent pay your new mortgage. "Outside of broadly hedging interest rate risk as I mentioned in my other answer, there may be a way that you could do what you are asking more directly: You may be able to commit to purchasing a house/condo in a pre-construction phase, where your bank may be willing to lock in a mortgage for you at today's rates. The mortgage wouldn't actually be required until you take ownership from the builder, but the rates would be set in advance. Some caveats for this approach: (1) You would need to know the house/condo you want to move into in advance, and you would be committing to that move today. (2) The bank may not be willing to commit to rates that far in advance. (3) Construction would likely take far less than 5 years, unless you are buying a condo (which is the reason I mention condos specifically). (4) You are also committing to the price you are paying for your property. This hedges you somewhat against price fluctuation in your future area, but because you currently own property, you are already somewhat hedged against property price fluctuation, meaning this is taking on additional risk. The 'savings' associated with this plan as they relate to your original question (which are really just hedging against interest rate fluctuations) are far outweighed by the external pros and cons associated with buying property in advance like this. By that I mean - if it was something else you were already considering, this might be a (small) tick in the ""Pro"" column, but otherwise is far too committal / complex to be considered for interest rate hedging on its own." You could consider turning your current place into a Rental Property. This is more easily done with a fixed rate loan, and you said you have an ARM. The way it would work: If you can charge enough rent to cover your current mortgage plus the interest-difference on your new mortgage, then the income from your rental property can effectively lower the interest rate on your new home.   By keeping your current low rate, month-after-month, you'll pay the market rate on your new home, but you'll also receive rental income from your previous home to offset the increased cost. Granted, a lot of your value will be locked up in equity in your former home, and not be easily accessible (except through a HELOC or similar), but if you can afford it, it is a good possibility.
"In a comment you say,  if the market crashes, doesn't ""regress to the mean"" mean that I should still expect 7% over the long run? That being the case, wouldn't I benefit from intentionally unbalancing my portfolio and going all in on equities? I can can still rebalance using new savings. No.  Regress to the mean just tells you that the future rate is likely to average 7%.  The past rate and the future rate are entirely unconnected.  Consider a series:   The running average is  That running average is (slowly) regressing to the long term mean without ever a member of the series being above 7%.   Real markets actually go farther than this though.  Real value may be increasing by 7% per year, but prices may move differently.  Then market prices may revert to the real value.  This happened to the S&P 500 in 2000-2002.  Then the market started climbing again in 2003.  In your system, you would have bought into the falling markets of 2001 and 2002.  And you would have missed the positive bond returns in those years.  That's about a -25% annual shift in returns on that portion of your portfolio.  Since that's a third of your portfolio, you'd have lost 8% more than with the balanced strategy each of those two years.   Note that in that case, the market was in an over-valued bubble.  The bubble spent three years popping and overshot the actual value.  So 2003 was a good year for stocks.  But the three year return was still -11%.  In retrospect, investors should have gone all in on bonds before 2000 and switched back to stocks for 2003.  But no one knew that in 2000.  People in the know actually started backing off in 1998 rather than 2000 and missed out on the tail end of the bubble.   The rebalancing strategy automatically helps with your regression to the mean.  It sells expensive bonds and buys cheaper stocks on average.  Occasionally it sells modest priced bonds and buys over-priced stocks.  But rarely enough that it is a better strategy overall.   Incidentally, I would consider a 33% share high for bonds.  30% is better.  And that shouldn't increase as you age (less than 30% bonds may be practical when you are young enough).  Once you get close to retirement (five to ten years), start converting some of your savings to cash equivalents.  The cash equivalents are guaranteed not to lose value (but might not gain much).  This gives you predictable returns for your immediate expenses.  Once retired, try to keep about five years of expenses in cash equivalents.  Then you don't have to worry about short term market fluctuations.  Spend down your buffer until the market catches back up.   It's true that bonds are less volatile than stocks, but they can still have bad years.  A 70%/30% mix of stocks/bonds is safer than either alone and gives almost as good of a return as stocks alone.  Adding more bonds actually increases your risk unless you carefully balance them with the right stocks.  And if you're doing that, you don't need simplistic rules like a 70%/30% balance." Here's one way of looking at it. The first years of a 30-year mortgage are mostly interest payments.  Even with a 4% 30-year loan -- I seem to recall seeing rates that low! --  the interest part of your payments for the first five years are double the principal part. You will pay less in interest if you throw extra money at the mortgage.  How much extra? Let's say you have a loan of $100,000 for 30 years at 4.5%.  The monthly payment is $506.69.  After five years, you've paid $8,842.43 toward principal and $21,558.97 toward interest. Let's bump that payment up $200 per month to $706.69.  Now, after five years, you've paid $22,284.24 toward principal and $20,128.56 toward interest.  You've saved yourself from paying $1,430.41 in interest. But if you can swing $706.69, can you swing $752.28?  That's the payment on a fifteen year mortgage at 4.25%.  After five years you'll have paid $26,562.31 on principal and $18,574.49 in interest:  $1,500 less in interest than even paying an extra $200/month on your 30-year. Now, another way of looking at it. If you're getting a 30-year, get one.  Pay only the minimum, and save what you would have paid toward your mortgage to fund a down payment for your next house, since you're planning to get out in 5-7 years.  Rather than try to sell your current house, rent it out.  Rents go up, but your mortgage payment won't.  Fixed-rate mortgages are a great protection against inflation. The answer to question 1 is yes, you can always reduce your loan when you remortgage by introducing additional funds. There is some possibility a (relatively) small charge might be applicable for managing the marginally more complex transfer, but it shouldn't be too much.. The answer to question 2 is NONE of your over payment amounts would have gone on interest, but you MIGHT incur penalty charges. Interest is only charged on the outstanding loan amount (i.e. £100K initially, reducing to £85K over 2 years in your example) at the interest rate determined by your mortgage agreement - there is no 'paying off interest' as such. Over payments are essentially all capital payments, reducing the principal/loan amount, so no additional interest would be paid if you opted for over payments. If you used your £10K to made the over payments throughout the 2 year fixed period you would in fact have paid LESS interest by the end of the 2 years, because you would be reducing the loan amount at a quicker rate, and thus the interest you pay each month (based on the lower outstanding loan at that time) would be lower. BUT... over payments might have attracted over payment penalties (typically a percentage of the amount you pay) and these penalties often mean it's not worth doing. Most fixed term mortgages have such penalties, but it depends on the agreement, and many mortgages also allow you to make over payments up to a certain amount each year before you get hit. Edit (additional suggestion): If the example you provide is one based on what you expect might happen to you over the next couple of years, something you could CONSIDER is an offset mortgage. Here your £10K that you accumulate reduces your interest through the 2 years, but you keep it in savings where you can access it if you need to. Accessing it will then cause a corresponding rise in interest payments, but to no higher level than you would have been paying if you had nothing in the savings in the first place. You usually pay a slightly higher interest rate for these sort of mortgage, so it's impossible to know if it would be more economical, and how appropriate it would be for you in other respects depends on many factors. Start with the bank where you have your checking and savings account. They can streamline some of the paperwork, because they can see how much you make, and have access to several years worth of bank statement. Legitimate mortgage companies do publish their rates. But there is no guarantee that you will qualify for the best rate without them knowing your credit score, salary, and down payment information.  There is no way to know that you have the best rate because of the time lag involved. You will pick the best one you can work with, but the rates can change every day.  Even when you lock in the rates, other companies can drift lower. Once you have started down the application process you will reach a point where switching companies will cost you time and money. Once you decide to purchase a house, the contract usually only gives you a few weeks to prove that you have financing in place. Therefore you will have to start the process before deciding on the house. Some advance work is needed to give you an idea of the maximum monthly payment you can afford, which will then based on the rate and down payment determine the maximum house you can buy. I have had good luck with my credit union, but there is no guarantee that yours will be competitive. Keep in mind that while rates are very important, some people also value customer service, and also like that the mortgage won't be sold to out of town investors. Considering your question, I have been in the market for a house to buy. There is a house that I   like and I wanted to know if I could afford it. You state your Assets: Awesome! Current Income:  Great job putting $1000/month into your 401k!  That is $12,000/year saved for retirement. Excellent! Current expenses: Why do you want to buy a house for more than 4x your gross income, and 3x median house price (U.S.)?  Are you planning on living in the house for at least 5-7 years?  There is a risk that interest rates will rise, and that will affect your ability to sell the house. Expected expenses: Adding your other essentials, You are considering increasing your expenses by $1000-1200/month. Looking at the amounts you quoted for direct housing expenses, you will have committed $2600/month to a mortgage payment.  Adding your other estimated essentials, you will spend over $3700/month (leaving $2200/month for everything else). You may have higher utilities for a house than an apartment, you are doing well with your food budget, and your cellphone is lower than many.  You anticipate $650/month ($7800/year) tax savings (be careful, congress is looking for ways to increase tax revenue). You want to keep your essential expenses under 50% (much more than 50% is difficult, and I am trying to get to 40%).  You may live in an area where housing costs are an out-sized expense.  But an option would be to save more, and a larger down payment could lower the monthly expenses below that 50% mark. "There are a few of ways to do this: Ask the seller if they will hold a Vendor Take-Back Mortgage or VTB. They essentially hold a second mortgage on the property for a shorter amortization (1 - 5 years) with a higher interest rate than the bank-held mortgage. The upside for the seller is he makes a little money on the second mortgage. The downsides for the seller are that he doesn't get the entire purchase price of the property up-front, and that if the buyer goes bankrupt, the vendor will be second in line behind the bank to get any money from the property when it's sold for amounts owing. Look for a seller that is willing to put together a lease-to-own deal. The buyer and seller agree to a purchase price set 5 years in the future. A monthly rent is calculated such that paying it for 5 years equals a 20% down payment. At the 5 year mark you decide if you want to buy or not. If you do not, the deal is nulled. If you do, the rent you paid is counted as the down payment for the property and the sale moves forward. Find a private lender for the down payment. This is known as a ""hard money"" lender for a reason: they know you can't get it anywhere else. Expect to pay higher rates than a VTB. Ask your mortgage broker and your real estate agent about these options." It sounds like you want to lock-up your money in something relatively safe, and relatively hard to touch. You may want to consider a GIC (TD has one I found in a quick search) - from what I see it's the closest thing to a US CD. You won't get much back, but if you pick a 5-year term, you can't spend it* easily. Other options might be to buy an ETF, or get into REITs - but that will depend on your risk comfort. Also - to add from the comment Rick left - be sure to pay off any high-interest debts: especially if they're on a credit card, it will help you later on. * easily .. you can withdraw, but there're generally penalties "I've never heard of a loan product like that. Yes, if they keep the funds in an account, it is no risk to the bank, but they would essentially need to go through the loan process twice for the same loan: when you pick a house, they need to reevaluate everything, along with appraising and approving the house.  Even if you did find a bank that would do this for you, there are a few problems with this scheme. You would be paying interest before you have a need for this money, negating the savings you might achieve if the interest rates go up. In addition, your ""balance"" will go down as ""payments"" are deducted from your loan, and when you finally find a home to buy, you might not have enough for the house you want. You'll need to borrow more than you need, which will further negate any possible savings.  It is impossible to know how fast rates will climb. If I were you, I would stick to saving for your down payment, and just get the best rate you can when you are ready to buy.  Another potential idea for you is to lock an interest rate. When you apply for a mortgage, the interest rate is often locked for as much as 60 days, to protect the borrower in the event that the rates go up. You could ask the bank if you can pay a fee to lock the rate even longer. I don't know if that is possible or not. And, of course, the fee would eat into your potential savings."