What is a Fixed rate (principal and interest) loan?

October 27, 2016
Tracy Reynolds

A fixed rate loan is a loan that has a fixed interest rate therefore, will have fixed loan repayments. The time frame of these loans can vary however; you are can usually “lock in” your repayments for between 1-5 years.

Even though the fixed rate period may be 3 years, the total length of the loan itself may be 25 or 30 years.

At the end of the fixed loan period you can decide whether to fix the loan again for another period of time at the current market rates or convert the loan to a variable interest rate for the remaining time left of the loan. 

There are pros and cons to fixed rate home loan, some of the pros are: Repayments do not rise if the official interest rate rises, a fixed rate can provide peace of mind for borrowers who are concerned about rate rises and it also allows the borrower to be able to be more precise when budgeting

And the cons are: Your repayments do not fall if interest rates fall, fixing the rate allows only limited additional payments and fixing the rate penalises early payout of the loan

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Posted in: Property market

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