As its name suggests, a fixed rate loan is one in which the interest rate set from the very beginning is maintained all throughout the lifetime of the loan. As this is commonly used in the context of housing purchases, this is also usually known as a fixed rate mortgage.
One of the advantages of a fixed rate loan may be maximized during periods in which low interest rates prevail. An individual who avails of a loan at this time is assured of having only to pay the same low rate, even if changes in the market cause increases in the prevailing interest rates. Of course, this also holds true during times in which interest rates are high. Entities who decide to take out loans during such a period would have to deal with making big interest payments until the loan is fully repaid. As such, it makes sense to monitor trends and if possible, wait for a good opportunity before deciding to take out a mortgage.
Another advantage of availing of a fixed rate mortgage, especially for new investors, is the fact that these are easier to understand, and payments are quite simple to compute for. There is no need to monitor fluctuations in interest rates or other changes in the market.
Fixed rate mortgages are taken in opposition to adjustable rate mortgages or variable rates. Variable rates, from the outset, seem to carry with them a lot of risk. However, these can also turn out to be beneficial for those who started out with a high interest rate when interest rates dip.
