Article

Fixed Rate of Interest
June 07 , 2012

Interest rates in the market, as we are aware, keep changing from time to time. Indeed, given that a home loan is often over 10 years in duration, the interest rates could fluctuate significantly in the interim.

In a fixed rate loan, the interest that you are charged is kept constant based on what you agreed upon when you started. In practice, however, the rate is not really 'fixed'. There are several clauses that permit the Bank to change the rate if market conditions change significantly. Thus, in a fixed rate loan, the only thing that can be said is that the rate is relatively more stable than floating rate. However, the stable rate itself is most often much higher than the floating rate loan from the same Bank.

Today, most deposits offer a fixed rate of interest (unlike home loans). However, that too could change soon, with Banks now offering floating rates of interest on deposits.

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