Fixed interest rates.
The interest rate you pay is fixed for a period of between 6 months and 5 years. The upside is that interest ‘charged' on the loan cannot increase during the fixed rate period. The downside is that if interest rates go down and you have fixed your rate for a longer period of time, you are stuck paying the higher rate. As such, there are some risks with fixing your rate for too long.
Capped rates are a variation where the interest rate cannot rise, but will drop if floating rates drop below the capped rate.
Floating or variable interest rates.
This means that your rate can go up or down as the economy changes. The downside is that if rates rise, so do your repayments. The upside is that reduced rates result in reduced interest costs. Another major advantage is that there is usually the flexibility to make additional (and ad hoc) repayments without paying additional charges
A mix of both.
It is possible to split a loan between fixed and floating rates. This lets you make extra repayments without charge on the floating rate portion at the same time as you gain advantage from fixed (and often lower) repayments on the fixed component of the loan. This option is worth considering for people with fluctuating income and/or where bonuses are payable, and we can help you work out the best option for your personal situation.
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