Fixed Loan

To understand why a fixed loan might be a good choice it’s important to understand what it is and how it differs from an adjustable loan. Fixed loans are actually the most common type of loan. They’re often referred to with terms like fixed-rate loan or fixed-rate mortgage if it’s a home-buying loan. The most common type of loan you’ll hear referred to in this way is a fixed-rate mortgage. While most loans like car loans and personal loans are actually fixed rate loans, the term is usually only used with a mortgage to distinguish it from an adjustable-rate mortgage.

So what is a fixed loan or fixed-rate mortgage? This is a type of loan in which the interest rate doesn’t change during the course of the loan. The rate stays the same month to month and year to year until the loan is paid off.

A fixed rate mortgage is often a better option than an adjustable rate mortgage, because there are no surprises. There can’t be a wonderful drop in the interest rate that lowers your debt or your payments, but by the same token it can’t raise, either. Even if interest rates skyrocket, the interest on your fixed loan stays the same as the day you signed the papers.

Some people are leery of fixed loans because they think that if the interest rates drop they’ll be overpaying. And if you take out the loan and interest rates drop and are lower than your fixed loan rate for very long, that does represent some savings you’ve missed out on.

But for most people it’s far better to be locked in at an interest rate that might be higher than future interest rates than to risk having an adjustable rate mortgage and watching the interest rate and their debt rise out of control.