What is the difference between a fixed interest rate and a variable interest rate?
Interest is calculated as a percentage rate of the loan/credit account principal. The interest rate can be fixed, which means it does not change over the life of the loan, or the rate can be variable, in which case it changes periodically. However, even a credit card with a fixed interest rate may see increases in the rate if the card user exhibits negative payment behavior (i.e. late payments, over the limit charges, etc.
– A fixed rate means the interest rate you pay on the mortgage will not change for the term of the mortgage. Choosing a fixed-rate mortgage protects you from rising interest rates during the term of your mortgage. However, if interest rates fall, you will be locked into a higher rate. A variable rate means the interest rate will fluctuate depending on the prevailing market rates. Each monthly payment will be the same amount, but the percentage of your payment that goes toward interest and the percentage that pays principal will change. If the rate goes down, a larger portion of your payment will go toward paying the principal. This could help you pay off your mortgage faster. A variable rate can help you save money if interest rates fall after you arrange your mortgage. If rates rise, you can convert your mortgage to a fixed rate. 4. Should you get a short-term or a long-term mortgage? – The term of a mortgage is the period of time by which you agree to repay your mortgage loan. Terms
