Fixed Rate Loan
With a fixed rate loan, because the interest rate remains steady, it is possible to budget effectively for your monthly payment. Because the interest rate is set at origination, the repayment amount will be the same for the life of the loan payment. Particularly in the mortgage industry, this benefit of a fixed rate lan is highly desirable as repayment can take place over the course of 30 years.
There are alternatives to a fixed rate loan. Lenders offer loans with adjustable or variable interest rates as well. While this alternative can be beneficial to those who are applying for a loan when interest rates are high, these loans do bring some risk. Many who struggled during the housing market collapse did so because their adjustable rate loans reset and increased interest amounts led to payments that they could no longer afford. This happened to homeowners who had chosen adjustable rate loans with deferred interest as well.
If you are exploring your options with a lender and want to be sure that your repayment plan is predictable and that payments remain within your budget, be sure to focus on fixed rate loan options. Choose the fixed rate loan that is best for your needs and your situation.