The general appeal of a fixed rate is the rate of interest paid on a loan doesn’t change for a set period.
That means when the lender puts its interest rates up or down, it doesn’t affect existing fixed rate customers.
There’s pros and cons to this:
- Pro: If interest rates increase significantly during the fixed term period, you could find yourself financially in a better position than borrowers on variable loans.
- Con: If interest rates go down, you still have to pay your locked-in interest rate for the duration of your fixed term.
If interest rates change in the period between when you agree to a fixed term and when your fixed term starts, that’s a more challenging scenario.
If interest rates go higher than what you were approved for you’ll typically have to pay the new, higher rate. Some lenders will offer you the chance to ‘lock in’ your agreed rate for a fee. Talk with the lender or a mortgage broker to calculate whether a rate lock would be a worthwhile option.
