Fixed
Fixed Interest Rate Home
Loans
Fixed
Fixed loans have their interest rate locked in for a
fixed length of time. At this time in Australia, you can
fix your loan for periods from 1-15 years. The longer
the fixed period the higher the interest rate. Fixing a
loan is a bit of a gamble because the borrower is taking
a "punt" on the direction of interest rates.
Very recently (September 2005), several of the major
banks have dropped their fixed interest rates. It is now
possible to get a 3 year fixed loan at just under 6.6%.
There are several disadvantages for fixed rate loans.
Firstly: If you wish to repay the loan before the end of
the fixed term, there is usually a substantial penalty
to pay. Secondly: Most lenders will not allow you to do
redraws. Thirdly: Most lenders will not allow you to pay
off more than $5-10K extra pewr annum.
Some lenders offer "capped" rates. With capped rates
you can have the best of both worlds: The interest rate
can never go above the "capped " rate, but if rates go
down, your capped rate will drop as well, unlike fixed
rates which stay at the same level even if rates go
down.
If the rate goes up, you're in front, but if rates
drop then you have lost. However if the thought of
interest rates rising keeps you awake at night, then
fixed rates might be for you.
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