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Reducing The Mortgage


Letís take a simple example (and let the break-even mortgage interest calculator do the work on more complicated scenarios).

The fixed interest rates are 7% for one year 8% for two years. Should you fix for one year or two years? This decision will ultimately depend on your personal circumstances. However, if we just consider the level of interest rates over the two year period, it would be advantageous to fix for just one year if you believe that in 12 months time, the one year fixed term will be less than 9%.

That is, year one at 7% and year two at 9% is the approximate equivalent of 8% over two years (7+9/2). So, if for example you were able to fixed for another 12 months in the second year at 8.50%, your average interest rate over the two years would be 7.75% (7+8.50/2), which is obviously less than the 8% 2-year fixed rate.

Confused? No worries, because your financial adviser, banker or mortgage broker will only be too happy to take you through your personal options.