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FIXED RATE LOANS |
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Fixed loans allow a borrower to lock in an interest rate for a particular period of time (normally 1-5 years). You then have the assurance of your repayments being fixed for that period no matter what interest rates do.
You could also split your loan between a fixed portion and a variable portion. Fixed has more restrictions usually e.g. most fixed rate loans limit or do not allow extra repayments or you cannot pay out the loan during the fixed period without incurring large penalties.
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Features such as redraw or mortgage offset are usually not allowed during the fixed period of a loan, however combining the loan allows you to take advantage of features available on variable rate loans.
Splitting your loan into two portions (fixed and variable) can be a good way to hedge your bets on interest rate movements. The fixed portion is safe if fixed at a low interest rate particularly if interest rates then increase. The variable portion moves with interest
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rates which is good if interest rates drop and you get the benefit of the change.
You can split into thirds, quarters or more - sometimes there is a minimum amount required per portion. You should also consider any fees incurred in splitting and if the loan is one which can be split or pick a package which is designed for such set ups.
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