[greycol]

Generally a fixed term has a worse rate for the borrower than the floating rate (assuming the floating rate isn't expected to change hugely in the future).

As a rule of thumb if you refinance from a fixed rate to a better rate you have to pay penalty fees if the rate is worse for the lender (better for you) relative to how much the lender would have made off you if the loan had continued at the previous rate. Because of this it only really makes sense if you can save money on the loan due to other factors that current market rate i.e. being able to pay of your mortgage at a faster rate, your credit rating has improved (or equivalent lending criteria), the lender is noncompetitive compared to the rest of the market, you believe the floating rate will decrease further in the short term and want to refinance to a floating rate before the penalties increase to match (though you'd be outguessing the rest of the market).

Refinancing from a floating rate or a fixed rate that is better(for you) than the market rate will have no or low penalties as your basically already paying market rate or worse and the lender has little downside in getting their money back.

So realistically if you believe that in 5 years the interest rate will be the same or lower you should be floating (or at least negotiating 5 years fixed instead of 10) and then you could negotiate for a lock in at that time.

[adamlett]

In Denmark, if you have a fixed-rate mortgage, you are always allowed to buy back the bonds at their nominal value. For that reason, you absolutely can save money by refinancing when the the interest rates go down (you still have to pay some fixed fees in order to do so). The funny thing is, that you can sometimes also save money when the interest rate goes up, because in that case you can buy back the underlying bonds at less than their nominal value. The savings in this case come in the form of tax savings, because you can deduct the (higher) interest.

[kgwgk]

> you are always allowed to buy back the bonds at their nominal value

That’s very surprising. Do you have a reference in English?

Edit: nevermind, I’ve found that’s indeed the case and those are callable bonds (so the prepayment risk is included in the price).