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.

The new way to choose your interest rate

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:

For the shorter term, 6-month rate to make sense, in 6 months, you’d need to be able to lock in at 6 months at 5.48% or below.

So ask yourself: “Will the 6-month interest rate fall over 1% in the next 6 months?”

If you’re like me and think that seems unlikely, go for the 1-year rate.

Scenario #2 – 1-year rate vs the 18-month rate

But – remember – when you go to fix your interest rate, the bank will likely offer you a discount.

So let’s say they offer you 5.79% for the 1-year rate and 5.69% for the 18-month.

When does it make sense to go for the more expensive 1-year rate?

Ask yourself: Will I get a 6-month rate under 5.49% in one year?”

The answer might be “maybe”.

That’s a 1% decline over the next year, comparable to the 1% drop in the last year.

So, if you’re like me … you might be comfortable taking the more expensive 1-year rate.

Click this link (below) to try the calculator yourself.

👉 I want to try the calculator and run my numbers

What if I get it wrong?

You might also wonder: “What happens if I choose the wrong interest rate?”

Well, you might. No one knows for sure where rates are headed.

Sure, experts provide forecasts, but we can’t predict the future.

So you have to give it a punt.

The point of this calculator is that it’s more of an educated guess rather than a random pick.