Fixed Rate

Fixed Rate

Most lenders offer fixed rate loans, generally for 1 to 5 year terms. At the end of the term, the interest rate usually converts to variable. On a fixed rate loan, your interest rate remains the same during the entire fixed rate term, even if variable market rates change. The fixed rates offered by lenders can be either higher or lower than the variable rate at any given time; therefore you need to make a comparison when considering this option.

Advantage: With fixed rate loans you are not impacted if variable rates increase, because your fixed rate will not change. This means that fixed rate interest can work out cheaper compared to variable rate interest.

Disadvantage: However, if variable rates decrease, you will not receive any benefit, as your fixed rate will remain the same. If market variable rates fall over time, it is possible that your fixed rate could be higher than the current variable rate, so a fixed rate loan could cost you more. Furthermore, you generally cannot make additional repayments on the loan without incurring penalties.

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