What is Fixed Interest Rate?

With real estate, education and even petrol prices all over the world, including Canada, shooting through the roof these days, loans are indispensable. A person borrows money from banks and other lenders in the time of need, and repays the money later, usually in regular installments. An interest is charged on the loan, and borrower choose the appropriate loan package after considering the interest rates, among other factors.

A variable rate loan is anchored to the current discount rate, and fluctuates, either increasing or decreasing. A fixed interest rate loan, however, remains constant just as the name suggests. Throughout the entire fixed rate duration, the loan will be repaid at a non-fluctuating interest rate. The advantage is that the borrower knows for certain what his/her future payments will be, and, hence, can be prepared. Canada has a number of fixed interest rate options for loans.

A fixed interest will vary from a variable one, and may be higher or lower depending on the current discount rate. If the prevailing discount rate is extremely high, it is inevitable that rates will fall during a certain time period. Thus, the fixed rate will be lesser than the variable one.

Similarly, a higher fixed rate will be decided on by the lender in times of extremely low prevailing discount rates, because the rates are bound to rise in the future. Sometimes, a person is obliged to the loan at a higher rate of interest after the preliminary fixed rate period, before they can redeem it. These are a type of fixed interest rate loans with extended overhang.

Canada is a wealthy nation, and has the world s ninth largest economy to be specific. The economy of Canada is mainly ruled by the service industry. 75 percent of Canadians are employed in the service industry. A number of banks and lenders in Canada offer fixed interest loans, with the fixed rate period varying from 1 to 10 year terms, or more.

According to the borrower s preferences, and depending on what suits them best, they can choose a fixed rate term. For the period that they choose, they will make the loan repayments with a fixed rate. As mentioned earlier, this is highly advantageous if what the borrower is looking for is stability. There will be no room for surprises, or shocks, and a fixed amount of loan repayment will offer borrowers security and peace of mind.

Certain Canadian banks offer a guarantee period on your fixed interest. If, by any chance, the discount rates fall during this guarantee period, your fixed rate will also be lowered. Some statistics of prevailing general fixed rates in Canada are: 3.39% for 1 year fixed, 3.59% for 2 years fixed, 3.99% for 4 year fixed, 4.39% for 5 year fixed, and 5.50% for both 7 and 10 year fixed. Thus, a fixed interest loan offers the borrower higher stability and security. Approaching various banks and lenders in Canada will enable you to know more about the various schemes and options while considering fixed interest loans.

Add Your Comments:
Fields with * are required
Your Comment Below:
Enter Above Code
Note: Comments are moderated - Spam will be deleted

HOME | Contact | Disclaimer | About Us | Faqs | Discussion |