FIXED INTEREST RATE With a fixed interest rate loan, the interest rate charged to you is locked for a set period of time, typically 1,2 3,4, 5 or 7 years. This means that your regular repayment amount will not change during that period of time. At the end of the fixed-rate term, the loan will usually switch to the standard variable rate offered by the lender or you can choose another fixed rate term.
BENEFITS Your repayments will not increase if interest rates rise. Fixed-rate loans provide certainty and make budgeting easier as you know exactly how much your repayments will be.
THINGS TO CONSIDER You will not benefit from falling interest rates. You are fixed into a set term, so you may be unable to sell your property or refinance until that term has expired. Unlike exit fees that were abolished in 2011, lenders can still legally charge you a break fee if you payout or refinance a fixed-rate loan during the fixed-rate period. You may not be permitted to make any additional repayments, or they may be capped to a certain amount. A redraw facility is usually not available on fixed-rate loans. When you refinance upon expiry of your fixed-rate loan, interest may have significantly increased.