A fixed rate loan allows you to have the same interest rate throughout a defined period of your loan term. Unlike variable rates that change over time, fixed rates are not vulnerable to any market influences. Fixed rates are used to protect you from rising interest rates, but with lots of flexible options nowadays that offer a low interest rate, you should think twice if a fixed rate loan is right for you. Also, you must be aware that fixed rate loans have restrictions around the amount of additional repayments you can make, and redraw function is typically unavailable.
Is a fixed rate loan right for you? If you’re the type who wants to know exactly how much you need to pay, then a fixed rate can be good for you. Fixed rate loans will allow you to budget carefully and prepare for your repayments. A fixed rate loan will give you certainty, unlike a variable rate loan.
TIP: Many people are unaware that fixed rate loans can trigger large penalties if paid out early. This is called ‘break-cost’, and you should carefully consider any future possible changes to your circumstances before committing to a long term fixed rate.