When looking at loans, there are several options. One of the most popular loan options is a fixed interest rate loan, as it can save you a lot of money – especially when it comes to property loans, including residential loans and commercial property loans. This type of loan’s key feature is that its interest does not rise or fall in response to the official cash rate as set out by the federal reserve for an agreed period of the loan. This feature allows you to correctly calculate your future payments and allows you to easily budget for a set period of time. Alternatively, a variable rate loan can sometimes be more affordable by a slightly lower interest rate however the rate fluctuates with official interest rates.
While it’s great to think about how much easier it is to have the same interest rate for a set period of time e.g., 3, 4 or 5 years, there are a few things to think about. One factor to think about is that sometimes, extra loan repayments are not allowed if you have a fixed interest rate without having an attached fee. Often fixed rate loans may also have a break fee if you change or pay off your loan within the set period. These terms are different from variable rate loans, which usually allow you to make extra repayments at no cost, however, variable loans are the riskier option because of the potential uncertainty of monthly repayments.
Talk to us about your options and whether a fixed rate loan is suitable for you.