Having determined their financial capacity based on either a principal and interest loan or an interest-only loan, the next question a property investor needs to answer is: ‘Do I want a variable or fixed interest rate or a combination of both for my borrowings?’
A large number of factors influence interest rates. Consequently, they are extremely difficult to predict and the longer the time frame, the greater the uncertainty. As we have discussed, property investment is a long-term strategy with a minimum period of 5 to 10 years and an ideal period of 20 to 30 years. Property investors need strategies to help manage the risk of the uncertainty in interest rates.
For an investor, the decision to fix none, all, or part of their borrowings is based on understanding the advantages and disadvantages of fixed rate loans compared to variable-rate loans.