Fixed Rate Loans VS Adjustable Rate Loans

Fixed rate loans are just like they sound, fixed. You agree with your lender to pay a specific amount of interest rate, and this rate stays constant for the life of your loan. Having a fixed interest rate gives you the confidence of always being sure exactly what your payment is, and this helps with making out your budget.

When you deal with adjustable or variable rates, your interest will fluctuate. It's usually determined by the 'Prime Rate', which is the rate of interest charged by the U.S. Treasury to borrowers. Anytime this rate is high, like periods of high inflation, you have to pay more. Whenever it's low, like at times when government is attempting to stimulate a recession laden economy, you can save on your interest. If you have to borrow while the interest rates are high, your payments will experience a drop as the Prime Rate is dropping.

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