Although increasing mortgage rates are still at least 12 months away, it is now time to start splitting your mortgage into multiple fixed-rate terms.
This is sometimes referred to as interest rate averaging. In the past a few brokers have sold this as a “unique value-add strategy.” To be honest it is a simple but valuable concept.
The rationale for this is to avoid having your entire mortgage mature at the same time. By staggering your mortgage across multiple fixed-rate terms, you reduce your exposure to steep mortgage rate hikes later on. Imagine your whole mortgage rolling off a rate of 6.50% on to a rate of 8.00% in three years’ time! A split solves this problem.
There is no rush to split. It can wait until your next fixed-rate maturity and go from there. We are still a wee way off it really mattering (I don’t think we’ll see the one-year rate get over 8.00% for another two or three years at a minimum and I don’t see it going much higher than that full stop.) Equally rates won’t fall from here.
My personal preference is to split between a 12- and 18-month fixed rate. I have already recommended short-term rates over long-term rates and that view has not changed. The one-year and 18-month rates are easily the best value and give you two opportunities in the not-too-distant future to reassess your interest rate strategy.
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