The Joys and Woes of Fixed Rate Loans

by : Ajeet Khurana

Buying a house and getting the finance for it is no mean task. When it comes to long term home loans, people generally prefer the fixed rate version. Why do customers prefer the fixed rate deal to a deal where the rate of interest might get altered? It is because the former offers a lot more security. However, borrowers who are looking for affordable loans should remember that the fixed rate that they will be paying shall not be the lowest in the market. Lower rates are generally offered by loans whose interest rates are variable. However, the latter may not offer the same peace of mind as the fixed rate version.

At the same time, when attempting to get a loan for a long term, say twenty-five years, one keep in mind all the possible risks. For a start, one should take into account the fact that government policies over a period of twenty-five years could have an impact on how you view your current home loan. Sweeping changes could easily transform the entire nature of a home loan. For instance, if the interest rates rose, you could protect yourself from much anxiety as your home loan provides you protection from rising interest rates. However, if the rates did fall, you would end up paying installments that are too high.

Thus, one should be familiar with the pros and cons of fixed rate loans. If one finds that the base rate on a home loan is too high, one can always try switching to a different lender. These days, there is no dearth of lenders, and each one makes an offer that is better than the next. However, even if one does end up finding a great deal with a low interest rate, there will be other costs that the borrower will encounter. Each new loan provider will require that you pay an arrangement fee. In addition to that, you will have to pay exit fees, as well as fees for valuation of the property and sundry legal expenses. This could become an expensive proposition. And if a borrower chooses to switch loan providers every so often, it will fall a little too expensive. Perhaps more than the high fixed rate loan would have cost.

People who have been considering a secured home loan should study the markets and figure out what the current trends are. If the interest rates are at a low, one should avail of loans at those interest rates at the soonest.