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The Joys And Woes Of Fixed Rate Loans

Oct 10, 2007
Financing a house purchase has always been a major issue. 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 great sense of 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 usually offered by those loans where the interest rates are variable. However, the latter may not offer the kind of security that comes with the former.

At the same time, when attempting to get a loan for a long term, say twenty-five years, one be aware of the various risks involved. 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 completely revamp the nature of a home loan. For instance, if the interest rates rose, you could rest peacefully in the knowledge that 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 know about the pros as well as the 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 sure their deals bring in the clients. However, even if one does end up finding a great deal with a low interest rate, there will be other costs that shall need to be paid. 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 not provide great value for money. 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 race over to find the best possible deals.
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