Should I get a Fixed Rate loan
30 December 2007
There are basically two different types of loans made available to people that need money. The two distinct options when seeking finance are a loan that has a variable interest rate or a loan with a fixed interest rate.
Fixed loans have several advantages, the most important and obvious is that the borrower will know exactly how much they need to set aside to repay their loan.
In times of constantly changing and rising interest rates, many Australian's are seeking fixed loans so that they can budget to meet their home loan repayments.
Lending products are fairly flexible and you can choose to have your loan interest calculated in part by a variable rate and a fixed rate if you are uncertain of what the interest rates will do.
You don't have to choose fixed or variable when choosing your home loan. You can do a split home loan interest rate if you feel that interest rates may go up.
The disadvantage of doing a fixed loan is that if interest rates fall then you are locked in at the higher rate for the duration of your agreement that you have signed with the bank. (Note: this is not the life term of your loan but simply the term that you and the financial institution have agreed to fix your interest rate for.)
Many lending products such as credit cards and different loans like home loans and personal loans are repaid at variable interest rates.
You can also apply for a fixed rate personal and home loan. However, be aware that these rates are locked in for the term that you decide and there are penalties if you wish to break your agreement with the financial institution should you need too.
Some of the different lending products and the type of interest rates charged are listed below for your convenience.
Credit Cards variable interest rates
Credit cards offer you money at call and at a variable rate. This rate can change and it is not even a market rate but a rate set by the financial institution for that particular credit card.
Credit cards all vary in the features that they carry allowing the banks and credit card companies to be competitive by offering different types of cards which have different fee and interest payment structures for you to take advantage of.
Personal loans fixed interest rates
Fixed personal loans offer you the advantage of being able to budget your weekly pay packet. You have set monthly repayments, which must be met, and there are no surprises in store for you during the term of your personal loan.
This makes repaying your loan that much easier with monthly repayments for the term of your personal ranging from 1 through to 7 years.
While personal loans are certainly a financial commitment they can be easily managed by budgeting thanks to the fixed interest rate.
Home Loans both variable and fixed interest rates
The average home loan is charged interest at a variable rate. First home loans have a fixed interest "honeymoon" period but revert to a variable home loan interest rate.
The home loan interest rate is set by the banks, which is guided by the Reserve Bank of Australia. At the moment, the Reserve Bank of Australia has set an interest rate figure of 6.75% for home loans.
Many economists believe this figure will rise to 7% in February 2008.
Variable and Fixed loans for your home have advantages and disadvantages. If the variable home loan interest rate goes up and you have a fixed home loan interest rate on your loan then you will be advantaged.
If the rate drops then you will be disappointed that you don't have a variable interest rate home loan.
You can seek to have a split home loan and have a portion being charged a fixed rate and a portion being charged at the variable rate.
Recommended Home Loans & Mortgages
