MONEY AND FINANCE

Fixed Interest Rate Definition

Fixed Interest Rate Definition

A relatively easy concept to understand, fixed interest rate is one of those rare financial terms that really means what it says. A fixed interest rate is a predetermined rate for the entire term of a loan, no matter the length of the loan.

The most common term that comes to mind when people say fixed interest rate is a home mortgage. In fact, lenders use the term “fixed-rate mortgage” in their advertisements which lends even more weight to thinking fixed-rate applies only to mortgages. Further, since we as homeowners borrow money at interest for 15 or 30 years to pay for our biggest asset we would naturally think of fixed interest rate as applying only to mortgages.

This isn’t necessarily so given businesses borrow money to fund their operations and services. This of course is a natural course of events in the economic life of a business. Businesses, like people, want to have the kind of interest rate that suits their particular needs.

Businesses, like people, want the security of a secure, fixed interest rate for the life of the loan. This allows them to borrow the amount of money they need with a predictable monthly payment. Obviously the fixed interest rate offers an unchanging interest rate for the life of the loan which enhances its attractiveness as a money tool for the borrower.

This is a budgeting convenience because it makes it easy to account for the same, predictable payments over the entire term of the loan. Not only are the interest rates locked in at a fixed interest over the life of the loan but the borrower is guaranteed they won’t go up even if, overall, interest rates are spiking higher.

The obvious benefit is the stabilization of business and/or personal finances. Another benefit closely associated with stabilization is the elimination of the worry factor should interest rates be spiking higher. While this can’t be measured in dollars, it can be measured in lower stress levels.

People considering borrowing money should seriously peruse the benefits offered by a fixed interest rate loan. In fact, unless otherwise not suitable, a fixed interest rate is the way to go.

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