Is it worth breaking your mortgage?
Longer term fixed mortgage rates are continuing to increase and this may be persuading some floating rate borrowers that it is time to switch to a fixed rate before costs rise even further.
"For example, if the one year interest rate is 5.5% and the 2 year rate is 6.25% we can use this to imply a breakeven one year rate in one year's time of 7%.
"If we choose to fix for one year at 5.5% and in one year's time we then re-fix at a rate less than 7% we will have made a better decision than fixing for 2 years at 6.25%, and vice versa."
The rough rule of thumb is that two years at a rate of 6.25% will cost 12.5% in total. To work out a comparison between two years fixed at 6.25% and taking a one year rate at 5.5%, deduct 5.5% from the total over 2 years (12.5%), which equals 7%.
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