With interest rates at an all-time low, taking the option of locking in an interest rate on your home loan to guard against possible future fluctuation as well as payment certainty may be attractive. However, it pays to know the ins and outs of fixed-rate loans before committing to one.
When purchasing or refinancing a property, borrowers can decide between fixed-interest loans that maintain the same interest rate over a specific period of time, or variable-rate loans that charge interest according to market rate fluctuations.
Fixed-rate loans usually come with a few provisos: borrowers may be restricted to maximum payments during the fixed term and can face hefty break fees for paying off the loan early. However, locking in the interest rate on your home loan can offer stability.
For those conscious of a budget and who want to take a medium-to-long term position on a fixed rate, they can protect themselves from the volatility of potential rate movement. Fixed rates are locked in for an amount of time that is prearranged between you and your lender. One to five years are the most popular fixed-rate terms for customers because a lot can change within that amount of time.
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