Loans usually have either fixed or variable (floating) interest rates. You should decide which type of interest rate to take up depending on your current financial status, current and future income and expenditure, your short-term and long-term financial goals, other loan commitments and overall saving plans.
Fixed interest rate packages offer an interest rate that is. This rate may apply for a fixed period of time of time e.g. a few years, after which a new rate may be offered, based on the prevailing interest rates.
If you re-finance or repay loan you may be hit with a break cost. If you lock in at a high rate and interest rates fall, you will continue to pay higher rate until the fixed period is over.
Floating or variable interest rates
Floating or variable interest rates change accordingly to the current interest rates and will be at the mercy of market fluctuations. Future interest rates are hard to predict as they depend on many economic factors.
With a variable or floating interest rate, you may need to adjust your cash flow in line with the corresponding interest rate, which means you have to set aside more to service your monthly instalments when that happens.
A home loan is a long-term loan. Financiers that offer the lowest rates for the first year and gives the most freebies may not work out to be cheapest in the long run. Choose carefully as interest payments on your home loan can take up a sizeable portion of your housing budget.
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