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Mortgage Secrets #3 How to Structure Your Mortgages Interest Rate Averaging - YouTube
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so we're going to talk about interest
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rate averaging and what's the best way
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to structure your mortgages so that
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you're not going to get stuck on high
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rates for a long period of time and then
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you're also not going to get caught out
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selecting a one-year rate and then the
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next year the rates have skyrocketed and
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you're going to be exposed to that that
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their big change so a lot of people get
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confused should I pick one year so I
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pick two years so I pick three year rate
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how should I struck my more structure my
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mortgages and how do I make sure I'm
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always getting the lowest rates and so
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general best practice is called interest
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rate averaging and so what we get is
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less risk more reward and what we're
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trying to do is measure against having
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some certainty and accepting there's
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going to be a little bit of uncertainty
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and if I said to you hey look let's pick
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a one-year rate let's go for what 4.1
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percent and then next year after that
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expires it's up to six or seven percent
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what's going to happen as your interest
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rate expenses are going to almost double
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so that's not going to be a fun time and
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what we're trying to do is split that up
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so that you don't have that uncertainty
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of not knowing what the rates are and
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having unexpected cost but you got the
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benefit of having the lower rates for a
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period of time
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and so this split is called interest
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rate averaging in in just the example
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we're going to look at today is 600,000
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of lending and we're gonna put some on
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one-year someone to year at some one
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three and so we're gonna put two hundred
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thousand for each of on each term so
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we're gonna break it down so this is
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2018 2019 2020 and so if you took your
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six hundred thousand and you put all of
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it on a three-year four point seven
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right there's two hundred thousand of
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lending excuse me would be nine thousand
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four hundred per year
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for those 200,000 I'm leaving and if you
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did that for three three years for the
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all 600,000 so what that means is if you
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fix all of your 600,000 on a three-year
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four point seven percent rate it's going
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to cost you twenty eight thousand two
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hundred dollars an interest expense
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annually so this is certainty of three
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years on four point seven percent but
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you say to me hey look I'd like I've
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seen this four point one percent right
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I'd like to take advantage of that so
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what would say is all right let's split
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your six hundred into three periods
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three portions 200k on three-year turn
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account to you at 200 count four point
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one percent for one year and so what
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does that look like well in 2018 your
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interest expense is going to be nine
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thousand four hundred for the 200k on
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the three-year portion eight thousand
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six hundred for the four point three
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percent two year portion of 200 and then
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that four point one percent 200k it's
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eight thousand two hundred and so what
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does this mean your first year you're
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only going to pay twenty six thousand
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two hundred and so instead of paying
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twenty eight thousand pay twenty six
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thousand so in your first year just
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splitting the mortgage up you're going
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to save two thousand dollars and you can
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put that money into your pencil
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principal repayments or you know go on
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holiday or spin it however you want
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now the student T of having the three
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years does mean it cost you more money
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and that uncertainty of taking all of
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this one year rate means you don't know
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what you're gonna have to be faced with
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in the year two and year three and if
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you work for all two years you wouldn't
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know what's going to be in the air three
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but the interesting thing to keep in
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mind is let's say this year one rolls
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over and now you've got a another 200k
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portion you'll fix it for one or two
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years this would have to be you
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if this one da rate was 4.7% then this
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is going to be 9400 and you add these up
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you're still going to save $800 so you
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can see that even if the one year
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interest rate spikes quite a bit that
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you're still going to save money doing
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interest rate averaging and there's a
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couple of different benefits firstly
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obviously there's annual savings and the
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protection of not being exposed to
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massive swings and interest rate changes
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but also what it means is so you fix
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this again for another one or two years
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and when this one expires you fix it for
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another one year what happens is
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everything is probably going to come up
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to Bijoux at the same time after three
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years and it means that you can you can
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go and get and then the cash back if
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you're open to change your being so cash
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back at the moment for six hundred
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thousand might be you know let's say
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four and a half thousand and by having
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it all come off at the same time that
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means the break fees are going to be
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zero well it might be a discharge B or
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something but doing the strategy gives
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you good flexibility and and what it
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means is if we have a look at this graph
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quickly instead of having big swings and
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rates every three years and it's
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unpredictable what we're trying to do is
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save money every year by having small
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portions coming up instead of having a
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big portion folks for a long period of
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time and making these little small
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increments makes it much easier to get
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your top-ups approved and that gives you
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more you know negotiation power because
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it means that list of your mortgage is
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going to be liable for break fees and
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you get to talk to your mortgage advisor
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or banker a little bit more often which
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despite the frustrations is actually
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probably an advantage so hopefully I've
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explained interest rate averaging well
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I'll try some
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as the points below
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