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Fixed Rate Loans
Unlike a variable rate loan, which fluctuates according to market pressures, the interest on a fixed rate loan remains the same during the period for which it has been fixed.
The advantage of a fixed rate loan is that if can offer you protection from rate fluctuations.
A loan can be fixed for periods of 1 to 5 years, with some lenders now introducing longer fixed-rate periods up to 15 years. The borrower is charged a premium or higher interest rate in return for the safety of a longer period.
Lenders usually place restrictions on extra repayments during the fixed period. In the event that the borrower wishes to pay off a loan before the fixed term has expired, the lender will charge a penalty or break cost.
Most fixed rate loans don't feature a redraw facility. At the end of the fixed term the lender may offer another fixed interest period; otherwise, the loan will revert to a premium priced variable product. The opportunity to refix the interest rate may incur an additional cost.
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