Interest rates are dropping. Fast.
At the last count, ANZ has slashed its 1-year rate 7 times since January. It’s a big deal.
But with interest rates dropping, many investors ask me: “Andrew, how long should I fix my interest rate for?”
This can be a tricky question since interest rates change all the time.
So I spent $4,850 to build you a calculator. That way, you can run the numbers for free.
The old way to choose your interest rate
In the past, I’ve said there are three ways to select your rate:
#1 – Blindly lock in the 1-year rate
Pros: Over the last 20 years, this has led to the lowest average rate.
Cons: You won’t always come out ahead. No guarantee the strategy will keep working.
#2 – Split your loan over a few interest rates
If you don’t want to put all your eggs (or mortgage) in the same fixed-rate basket – hedge your bets and split your loan.
You could fix $250k for 1-year and another $250k for 2 or 5 years.
Pros: This gives you an average of the market over time.
Cons: It won’t give you the lowest overall rate. You’ll just get an average of the market.
#3 – Run the math
Or, you could use a spreadsheet to run a few scenarios.
Pros: Gives you a better, more nuanced answer
Cons: It’s math-heavy. And my previous spreadsheets caused more questions than answers.
Because those old ways of choosing your rate have drawbacks … I built this new interest rate calculator. You can use it here for free. But here’s how it works:
Scenario #1 – 1-year rate vs the 6-month rate
Let’s say you’re weighing up the 6-month and 1-year rates.
The 6-month is more expensive, but you think: “But if interest rates come down, maybe I’ll be better off.”
So, does choosing the more expensive, shorter-term rate make sense?
Pop the details into the calculator, hit calculate, and you’ll get your answer:
