Help which mortgage term to choose

[Bullseye]

If you can do a 4 year fixed, there are huge interest hikes projected in 5 years.

If this were true, why would banks be offering 5 year mortgages at 3.64%?

Long term rates are low because expectations are that rates will stay low for the next number of years.

[squid]

What I mean is that there's big penalties if he breaks the mortgage (i.e. sells the home or refinances) before the 5 years are up.

But isn't the penalty either IRD or 3 months interest whichever is more? In a rising rate environment, IRD will be less than zero, so the 3 month will apply. Still not nice, but not the huge IRD penalties people have been hit with recently.

But agreed, no sense to lock in for a long time if you are expecting to sell soon.

[squid]

take the 5-year fixed term. you're not ever going to do much better than that and p-.10 isn't going to seem like such a great deal in 3 years.

Remember the study by York prof Milevsky showed you likely are better in variable 9 out of 10 times. If it takes 3 years out of a five year term to get to higher rates, you probably saved a lot in principal payments to make variable a better option overall.

Less risk in a 5 year, though. That's why it will likely cost you more. That premium for reduced risk is priced in to the markets.