3 Year Fixed Rate

May 5th, 2011 27 Comments
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Almost everyone will need to take out a loan at some point in his or her life. Whether it be in the form of a home loan, to start a business, or to purchase a vehicle, loans are necessary for many of the major transactions we enter into. Choosing the best loan, however, can be a very tricky process at times. With all of the different terminology involved, the lending process is confusing for a lot of people. However, if you make an effort to understand the various options available, you can save yourself a lot of trouble later on. This article will discuss one of the most popular loan options- the 3 year fixed rate loan.

When looking for a loan, there are several different types you can consider. Some loans are variable rate loans, which means that the interest rate is subject to change over time, while other loans are fixed rate loans. A fixed rate loan is a type of loan in which the interest rate will remain the same for a predetermined period of time. One of the most common fixed rate loans is the 3 year fixed rate loan, though other lengths are also available such a 5 year or 10 year fixed rates.

If you decide to obtain a fixed rate loan, you will probably want to find the lowest rate possible. Since the fixed rates available are constantly changing, the lender that has the cheapest rate today may not be the same one whose rate is cheapest tomorrow. The best plan of action when applying for a 3 year fixed rate loan is to wait until you are ready to go through with the transaction and compare the rates available at that time.

Though the rate percentage is extremely important, there are several other aspects of the loan other than the rate percentage that should be taken into consideration. First of all, one needs to consider the rate lock fee. These fees can be considerably different depending on the lender. Some lending institutions charge on flat fee for the rate lock, while others may charge a given percentage of the loan amount. If your loan will be relatively small, it will probably be in your best interest to find a lender that charges based on percentages. However, borrowers of large loans will benefit more from a flat fee. Finally, there are some lenders that may not charge any rate lock fees, so it is important to compare all of your options before you make a final decision.

Another aspect that needs to be taken into consideration when choosing a bank is the revert rate. Some fixed rate loans revert to the variable rate at the completion of the fixed rate period with no discount whatsoever. However, it is possible to find fixed rate loans that revert to a rate that will likely be lower than the standard variable rate.

Finally, when you are considering different lenders, you need to pay attention to the flexibility allowed. A lot of fixed rate loans will not allow you to make any extra repayments for the duration of the fixed rate period. However, some lenders will allow the borrower to make repayments during this time. This extra flexibility can be very beneficial should you feel the need to pay the loan off early. Believe it or not, some lenders allow you to make extra repayments on a fixed rate loan.

The 3 year fixed rate loan is the most popular among fixed rate loans because many of these types of agreements will penalize the borrower should he or she decide to make extra repayments or exit the loan early. In fact, many fixed rate loans require the borrower to pay something called a “break cost” if they end the loan early. A break cost can be very expensive. For this reason, 3 year loans are often preferred because the time is long enough to make the fixed rate worthwhile, but not so long that the borrower would feel the need to exit early. That being said, it is very important to understand the break costs you will incur should you choose to exit the fixed rate loan before its predetermined end date, so be sure to factor these costs into your comparison as well.

In order to get the best of both worlds, many clients choose to take out a split loans or mortgages in which part of the loan is a fixed rate and the other portion is a variable rate. This option allows the client the security of a fixed rate on one portion of the loan while allowing him or her to make extra repayments on the variable rate portion if he or she so desires.

It should be noted that taking out a 3 year fixed rate loan in the last 20 years has actually been more expensive than a standard variable rate loan in the end due to the trends of the variable rate. For this reason, it is very important to compare your options carefully before signing any type of loan agreement so you don’t lose in the long run.


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