Fixed Interest Rate Loan

A fixed interest rate is attractive to borrowers who don’t want their interest rates fluctuating over the term of their loans, potentially increasing their interest expenses and mortgage payments. Fixed rates might apply during the entire term of the loan or for just part of the term, but it remains the same throughout a set period. Since the rate remains constant, this type of loan protects borrowers from negative changes in the market and enables planning for the future. However, if market conditions change to become more favorable, a fixed-interest rate mortgage may not be beneficial. Generally, a fixed-interest rate mortgage provides stability and predictability.

Overview

A fixed interest rate avoids the risk that a mortgage or loan payment will significantly increase over time. A common reason many people choose FRMs is because they are predictable. Unlike ARMs, whose monthly payments are bound to changing rates, the interest rate on FRMs do not change throughout the life of the loan. This predictability is enough to give peace of mind.

Fixed-Interest Rate FAQs

Is it a good idea to get a fixed rate loan?

A fixed rate loan is a great option for first time homebuyers because the interest rates do not fluctuate. This allows homeowners to predict and plan for monthly payments. A fixed rate loan can protect homeowners from negative market changes that might make monthly payments unaffordable.

Can fixed interest rates go down?

The interest rate that is agreed on at the beginning of the loan will remain. This means even if the market shifts to a more favorable rate, your rate will remain the same. Some loans have a fixed rate period and then switch to a variable rate. In this type of loan, when the fixed rate period is over, the interest rate may go down if the market conditions are good.

Why get a fixed rate loan?

Fixed rate loans offer peace of mind that your monthly payments will not go up. On a variable rate loan, market changes can cause monthly payments to rise significantly. A fixed rate loan can enable long term planning and financial stability. Knowing what your monthly payments will be can help you budget.

Is fixed interest risky?

The only thing you are risking with a fixed-rate loan is missing out on favorable market conditions. If you get a fixed rate loan and the interest rates go down, then you would have been better off with a variable rate. However, it is difficult to predict and could easily go in the other direction. Usually a reputable mortgage broker can help you look at market predictions and trends to decide whether it is a good idea to get a fixed rate loan.