Fixed vs. Variable Rate
A fixed rate stays the same for the loan's life; a variable rate can rise or fall with market conditions.
A fixed-rate loan locks in one interest rate for its entire term, so payments never change because of rates. A variable (or adjustable) rate is tied to a benchmark and can move up or down periodically, which means payments can too. Variable rates often start lower than fixed rates, trading predictability for a potentially cheaper — or costlier — outcome later.
Worked Example
A 30-year fixed mortgage at 6.5% pays that rate in year 1 and year 30 alike. A 5/1 adjustable-rate mortgage might start at 5.75% for five years, then adjust annually based on market rates — cheaper at first, but with payment amounts no longer guaranteed after year five.
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