1. The average balance would be #1, beginning balance plus ending balance divided by two. It doesn't matter that the balance was not for 12 months.
So in your case (1470 + 1470) /2=1470 PLUS 450 = 1,920,000 for both loans together
2. Yes, it is permitted to not claim interest you paid on a loan. If one loan has a higher interest rate than the other, claiming both could possible be less advantageous than averaging both.
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