Fixed Interest Rate Home Loan
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What is a Fixed Interest Home Loan?A Fixed Interest Loan allows you to fix the interest rate for a set term (usually 1 - 5 years) unlike a variable rate home loans where the interest rate varies according to market forces. When the loan reaches the end of its term you may be able to roll over into a new fixed term loan at the prevailing interest rate, or convert to a variable rate loan.
Fixed interest loans are popular when interest rates are rising and borrowers want to lock in a rate that will insulate them from excessive rises in repayments. However no-one has a crystal ball which can accurately predict future interest rate rises. Locking in an interest rate is a two edged sword. Interest Rates can rise or fall. One option available to borrowers is to take out a split loan. Part of the loan can be taken out as a fixed rate loan and the other part as a variable rate loan.
Property investors often like fixed interest loans as they enable them to sleep at night when interest rates are rising. Knowing their future costs assists in budgeting and forecasting projections for investment planning. It can also provide a breathing space and allow time to build cash reserves and make contingency plans.
The unpredictablity of interest rates make fixed rate loans a gamble, but for some borrowers the comfort and security provided is worth the risk.
Fixed Interest Rate Loans
Features of Fixed Interest Rate LoansA Fixed Interest Rate Loan is usually 1 - 2.5% more expensive than a variable rate loan. Probably the main advantage of fixed interest rate loans is the stability of knowing what your repayments are going to be for the period of the loan. This is particularly important for investors with multiple properties, especially if they are negatively geared.
It is important to realise that if official interest rates fall you may end up paying more in repayments than if you had a variable rate loan.
Fixed Interest Loans do not usually have many of the features found in Variable loans, such as repaying the loan without penalty.
Benefits of Fixed Interest Rate Loans
Tips and strategies
Example Rates and FeesFixed Rate Home Loan NO FEES (October 2012):
*Based on $250,000 Loan over 25 years.
You can apply over the Internet Lending Professional for a free no-obligation quote on a Fixed Interest Rate Loan.
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