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Fixed or Variable? |
| Some people get confused about the difference between
variable interest rates and fixed interest rates and they are not at all
sure what an APR interest rate is all about. So below is a brief
explanation of these: |
| Variable Rate |
| With this type of loan the amount of interest that you must pay can
increase and decrease. Changes in the variable rate is determined largely
by base interest rates set by the European Central Bank. |
| Fixed Rate |
Are you looking for a mortgage where you will know what your
repayments will be for a fixed period so that you can plan your budget? If
so then a fixed rate loan may be for you.
Fixed rate loans
are those where the rates are fixed for a specific term with the result
that your mortgage repayment remains constant for that term. For example
you can take your mortgage over a 20 year term and decide to get a fixed
rate for the first 3 years of that term thereby making it easier to plan
for the future.
So, of course the question is 'What happens at the
end of the fixed period?' At the end of the fixed period you can choose
between fixing your payments again for another specified period of time at
whatever the new prevailing fixed rates are on offer, or you can switch to
a variable rate repayment method.
If you opt for a fixed rate
you commit yourself to paying this rate until the agreed period of time
has expired. If you decide to pay your loan back early or wish to change
to a different interest rate offer you will have to pay a fee (known as an
early redemption fee) for terminating your fixed rate agreement. You
should therefore only opt for a fixed rate if you are certain that you
won't be "breaking" the fixed term contract.
You should also keep
in mind that house prices are relatively high at present with the result
that many first time buyers are taking out large loans. This can in part
be afforded because interest rates are low at the moment. But if there's a
possibility that a 1 - 2% increase in interest rates would make it
difficult for you to meet your repayment commitments, then you should
consider opting for a fixed rate repayment agreement to get you
started. |
| APR - How do they help you ? |
The Annual Percentage Rate (APR) on a mortgage is higher than the
interest rate because the APR takes into account some of the costs that
you pay when getting the mortgage.
The purpose of an APR is to give
you an indication of the real cost of your borrowings over the life of
your loan so that comparisons can be more easily made. You see, sometimes
you may be offered a special discount or an attractive start up rate for a
fixed period at the beginning of your loan agreement and once the fixed
period has expired the rates may increase. So the rate you pay at the
outset doesn't actually tell you the annual percentage interest rate that
you may have to pay in the
future. |
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