Are you searching for the best option when considering applying for an investor loan? Before you put any money down, you must understand the difference between fixed and variable rate terms. Investor loans come with two rate term options—fixed and variable. Here is a simple guide to help you decide which term rate is best for you.
Fixed-Rate Loans
Fixed-rate loans are the most common type for investors—banks and other traditional lenders usually provide them. They have a fixed interest rate that will remain the same throughout the term of your loan. The interest rate is usually locked in once the loan is approved, so there are no surprises if interest rates go up or down in the future. In other words, if you have a 5-year loan, then your interest rate will stay at 5% until the end of that period. You may also have a prepayment penalty if you pay off early.
Variable Rate:
Variable-rate loans are less common, but they do exist—and they’re worth looking into if you want to ensure your investment loan doesn’t get taken advantage of by predatory lenders who only offer their highest interest rates to new borrowers with poor credit histories.
A variable-rate means that your interest rate changes over time—it could be lower or higher than the current market rate for similar loans. For example, suppose market rates are low now but high in two years. In that case, your loan will have a lower interest rate than it would otherwise because it’s more affordable now than when it’s due to expire (unless there’s another reason why you might want to consider other terms).
Conclusion: What Is the Best Choice for You?
Figuring out which rate is for you depends on what your situation requires and how flexible you can be regarding payments.
If you’re looking for a fixed-rate loan, you know exactly how much you’ll owe at the end of the loan term. This can be a good choice for borrowers who want to pay off their loan as quickly as possible or have a set amount of money available for their monthly payments.
If you’re looking for a loan with a variable rate, then you’ll have more flexibility regarding repayment terms and can make small adjustments to your payment if necessary. This is generally better for borrowers who are comfortable making small adjustments to their payment if necessary (because they may need to) or who know that they won’t be paying off their loan at the end of the term because they don’t have enough money saved up.
But sometimes it’s not that simple! For example, if you qualify for a lower interest rate but your credit history is less than stellar. It would mean higher payments in the long run; you may need to consider other options like refinancing or private loans before choosing a variable-rate option.
