A fixed-rate mortgage is a type of loan in which the interest rate on the loan remains constant over a period of time. In this type of loan, the borrower enters into an agreement with the lender that determines that the interest rate on the loan will remain the same for a certain period of time (usually one to five years) regardless of fluctuations in market interest rates. This is in contrast to a variable-rate mortgage, where the interest rate adjusts in response to changes in market interest rates.
Here are some of the key features of a fixed-rate mortgage：
Stability: The biggest advantage is stability as your repayment amount is fixed throughout the fixed period and is not affected by fluctuations in market interest rates. This helps in budget planning and you know exactly the fixed repayment amount to be paid every month.
Risk protection: Holding a fixed-rate mortgage prevents you from facing a higher repayment burden if market interest rates rise. This provides certain risk protection in times of economic uncertainty.
Fixed period: Fixed rates usually have a predetermined duration, and once this period is over, the loan is converted to a floating rate, which is subsequently adjusted according to market conditions.
Inflexibility: During the fixed period, you may face some restrictions, such as the possibility of incurring additional charges for early repayment. Therefore, you need to be aware of the relevant contractual terms and conditions when opting for a fixed rate mortgage.
Relatively high interest rates: In general, fixed interest rates may be slightly higher than variable rates. This is due to the risk taken by the lender to provide interest rate stability.
When choosing the type of mortgage, you need to consider your financial situation, your future repayment ability and your risk tolerance to fluctuations in market interest rates. You may want to consult a MoreMore Finance broker for more specific advice, and read and understand the terms in your loan contract carefully.
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